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Xavier Oustalniol: Will France expand the scope and reach of its anti-corruption agency?

The Special Investigative Commission of the National Assembly has released a report on the conditions surrounding foreign investments in French companies of strategic importance.

While the report discusses French industrial policy in the context of globalization more broadly, it also provides insight into how the French government may strengthen the Agence Française Anticorruption (AFA) and its ability to cooperate with foreign regulators on investigations involving corruption.

The report presented a number of propositions and was based on many interviews, including one with the head of the AFA, Charles Duchaine, that suggest how to widen the scope of the AFA, strengthen anti-corruption provisions in Sapin II, and how the AFA intends to work with monitorships imposed by foreign regulators going forward.

Expand the means available to French regulators to more closely match foreign regulators. Propositions in the report provide ways for the AFA to expand its jurisdiction over more foreign companies operating in France, and coordinate better, while protecting French interests and for the “Parquet National Financier” (PNF) to self-fund regulatory activities.

Proposition 39, for example, suggests changing the current law, to include subsidiaries of foreign companies that are not currently governed because the parent’s headquarters are located outside of France. It is clear France intends to benefit from tools identical to those available to foreign regulators who have jurisdiction over French subsidiaries in foreign countries. It has already expanded its laws to be extraterritorial and it seems that the legislators either intended to cover these aspects or may not have focused on that “loophole.” Of course, that would likely increase the scope of issues with which the AFA has to contend.

Proposition 41 suggests expanding the definition of “persons of interest” under Sapin II to include more investment bankers. Currently, under Sapin II, certain investment bankers can avoid registering if the number of contacts made with  politically exposed persons (PEPs) under the law is below 10. Investment banks are not proponents of this proposed modification. They believe that interacting with government representatives does not constitute lobbying; the rules would conflict with insider trading rules; and that, if PEPs reach out to them, it should not count.

To fund the inevitable increase in regulatory activity resulting from such changes, Proposition 40 suggests modeling penalties and fines after those imposed by certain U.S. regulators and allowing regulators such as the PNF to fund future regulatory actions. Mr. Duchaine explains in his interview that France has had a Manichaean approach to enforcement, rather than a more economic, cost / benefit analysis in which large fines are levied such as in the U.S. The Commission took his comments to heart.

Mr. Duchaine also suggested increasing the scope of the AFA in assessing and supervising companies under the “Convention Judiciaire d’Interêt Public” (CJIP). While he no longer seems to think that the AFA can internalize the role of the monitor (and, in fact, indicated that using outside experts may be preferable), he does believe that the AFA has a role to oversee the actions of the designated monitor. For example, he believes that the AFA can provide some assistance concerning the assessment of the cost of monitorships, referring to a questionnaire based upon multiple criteria (situation, size, industrial sector, revenue, etc.) to be shared with prosecutors and defraying such costs on companies.

Strengthen ties and increase cooperation with foreign regulators and protect French interests. One of the key goals sought by these changes is to enable French authorities to take on a larger role in anti-corruption investigations by formalizing information sharing between regulatory agencies, more closely coordinating investigative efforts with foreign regulators, and providing greater support and insight on remediation efforts, while protecting French economic interests.

Proposition 43, for example, outlines the need for a more structured, formalized process to share information between the AFA and foreign regulators. The AFA, on occasion, now finds out about investigations or agreements reached (i.e., monitorships) between foreign regulators and French companies through news announcements. The proposition seeks to address the ability of the French government to oversee or be involved with ongoing investigations, monitorships or other sanctions placed upon French companies, concurrent with the ability to protect or prevent the sharing of information by French companies under the premise of the so-called “loi de blocage” (blocking law).

To that end, Mr. Duchaine believes that the AFA should not only have a role in foreign monitorships to help protect sensitive information, but to some extent also share information with the regulator. For example, he suggests that the AFA can play a role in framing the scope of remediation based on prior experience with the company or other knowledge of the situation. In other words, it may benefit the company to have the AFA coordinate with foreign authorities to help minimize the scope of the monitorship and not “recreate the wheel.”

However, there is a risk for a company approaching the AFA if it is under investigation by foreign jurisdictions to seek assistance, as it may fall under scrutiny for possible additional penalties in France. It seems logical that such a process can only co-exist if the foreign jurisdiction accepts to turn things over to the AFA and otherwise resolve the issue of “non bis in idem.” Otherwise, it is likely that evidence of corruption may create problems in both jurisdictions.

In conclusion, the propositions of the Commission would push Sapin II even closer to a stronger anti-corruption framework, with more tools made available to the AFA and other regulators and incite stronger cooperation with foreign regulators, which may benefit French companies. Conversely, foreign companies operating in France that previously escaped the scrutiny of the AFA would be under a larger magnifying glass.

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Xavier Oustalniol, pictured above, is a partner in the San Francisco office of StoneTurn. He began his accounting career in his native France. Now, with more than 25 years of experience as an auditor, forensic accountant and litigation consultant, he focuses on complex forensic accounting issues, fraud investigations, and fraud prevention and anti-corruption compliance assessments. His clients include many French companies and U.S. entities with operations in France.

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