Global Investigations Review - The law and practice of international investigations

The European, Middle Eastern and African Investigations Review 2015

France

22 July 2015

Allen & Overy LLP

Handling internal investigations

Internal investigations are not governed by any piece of legislation or regulation under French law and there are no such things as guidelines for best practice in France.

Thus, a corporation’s ability to monitor the activities of its employees or officers and to deliver information or evidence at an international level is only limited and framed by general principles of law such as the necessary respect of individual rights, and more specifically of the employee’s private life, or business secrecy, or the privilege between the lawyer and his client.

Employment law issues

Generally, employers have the ability to monitor the use of professional tools by their employees. Indeed, during working hours and in the workplace, all the tools made available to the employee are presumed to be professional. Hence, the employer can notably control the use of telecommunication tools, e-mails, computer files, USB sticks (when connected to the company’s computers), documents and so on, without any authorisation from the employee.

However, prior to any investigation on telecommunication tools, to comply with data protection requirements, it is advisable to make available to all employees a policy or internal rules guide which sets out clearly the possibility for the employer to conduct random or systematic verifications into the content of any IT equipment used by the employees. The aim of such a policy is to prevent abusive use of professional tools and, potentially, to indicate what is an accepted use of the said tools and what is prohibited.

This can be inserted in the company’s rules of procedure (for small entities only), in an internal circular or in a specific computer charter. If such a document fails to be made available to employees, the evidence obtained during the control might not be admissible in case of a judicial dispute before the court (according to the rules settled in the article 9 of the French Civil Code of Procedure).

Besides, and even though this obligation is observed, the employer can be limited in its power of control by the fundamental right to privacy. The latter is guaranteed both by national law, notably through article 9 of the French Civil Code, and by article 8 of the European Convention of Human Rights, which refers to the respect of confidentiality.

This principle of the right to the respect of privacy was confirmed by the French Supreme Court, in the well-known Nikon case (Cour de Cassation, Chambre sociale, 02/10/2001, Nikon, No. 99-42.942). In this case, the court ruled that ‘the employee has the right, even during working hours and in the workplace, to the respect of his private life; which implies especially the confidentiality.’

Thus, for all documents, e-mails, files and so on, that the employees have expressly identified as ‘personal’ or ‘private’, the employer’s ability to access these documents, e-mails or files is subjected to the obligation to ask the employee to attend the meeting or session where such documents will be consulted by the employer.

Nevertheless, the employer can override this required physical presence in case of a legitimate reason. To do so, it is best to have a judicial bailiff appointed by an ex parte court order so as to conduct the search on the e-mails and files that are identified as private or personal.

Blocking statute

The blocking statute could appear as another obstacle to internal investigations, the aim of which is to protect economic intelligence.

Indeed, the blocking statute was set up by the Law of 16 July 1980, amending the Law of 26 July 1968, which was limited to the communication of files in the case of sea trade.

According to the discussions during parliamentary work, its purpose was to protect the French economic intelligence, in the context of the Cold War during which some countries had developed very intrusive strategies.

Hence, article 1-bis of the law provides that:

Subject to the current treaties and international agreements and laws and regulations, it is forbidden to ask, search for, or communicate, in writing, orally, or in any other form, documents or economic, commercial, industrial, financial or technical information, which tend to constitute evidences for judicial procedures […]

However, its usefulness is questioned, as only one famous case (Executive Life) gave rise to actual criminal prosecution and to a conviction on the basis of this blocking statute.

Indeed, companies tend to spontaneously renounce the protection offered by the statute, especially because of the very stringent obligations and sanctions imposed in disclosure or discovery proceedings in the United States and the United Kingdom where courts have recently maintained that the French blocking statute is not a valid defence to the obligations of disclosure.

In order to abide by the blocking statute and to comply with a disclosure order, it is advisable to try and convince the foreign court to resort to international cooperation mechanisms for the taking of evidence in civil and commercial cases.

Privilege

Another obstacle to internal investigations can be found in the privilege settled between the lawyer and his client. Solicitor–client privilege is divided in both an obligation binding the solicitor and in a protective right.

Confidentiality shall apply ipso facto to the correspondence addressed on behalf of the solicitor to his client as well as to the correspondence intended for the latter. Under the rights of defence, the afforded protection is of an absolute nature.

The client’s confidence level in his defender is at stake here. This level should be maximal to allow the client to confide and communicate the necessary truth, which will be produced in court to defend his interests.

Three bases coexist for the principle of confidentiality, applicable to solicitor–client correspondence.

The first basis is a legal one and lies in article 226-13 of the Penal Code, criminalising the breach of confidentiality in case of disclosure.

The cornerstone legal foundation resides in the article 66-5 of the Law of 31 December 1971 providing that the correspondence between a solicitor and his client should be ruled by professional confidentiality, regardless for the matter, whether it is defence or advisory activity.

Identifying whether the exchanged correspondence was between the solicitor and his client or between the solicitor and his colleague is irrelevant.

The article also covers the provided consultations and the whole case documents.

The secrecy of correspondence is intrinsic within the notion of professional secrecy in such a way that the article simply sets a definition, circumscribed to solicitors, of the content of the information confidential information which is article 226-13 of the Penal Code is designed to protect.

The second basis is regulatory. The privilege of confidentiality is constantly reaffirmed.

The third and last basis is European. The principle finds its essence in article 8 of the EHCR.

Exceptions in that field are exceptional and restrictively appreciated. Hence, internal investigations are limited by the necessary respect of this principle.

Enforcement landscape

Investigations in France are led and controlled by different authorities, either judicial or regulators.

Judicial authorities and investigation services

At the beginning of a case, investigations are under the supervision of the Prosecutor’s office, which is able to give instructions to investigation services and to control some measures involving deprivation of liberty, as long as the attempt to individual rights is not considered as being too constraining. For example, it is in charge of controlling custody for the first two days (in other words it controls all standard custodies, and loses its competence only in the case of exceptional procedure, such as organised crime procedures).

A new Prosecutor’s office, with national competence, was created by the Law of 6 December 2013 relating to tax fraud and serious economic and financial crime. The objectives defined by the Financial Prosecutor, Eliane Houlette, are to ‘lead a national, homogeneous and coherent public policy […] and to make progress in international investigation cooperation’ for such offences. Thus, it is composed of specialised judges and its investigative powers are strengthened. For some offences, its competence is exclusive: for instance, market abuse offences. For other offences, it only has concurrent competence with regional Prosecutors’ offices, and will only deal with the most complex cases: organised tax fraud, probity offences, etc.

The Prosecutor’s office benefits from the principle of discretionary prosecution. It can choose to close the case, to prosecute before the court, or, for the most complex cases, which require longer investigations, to refer them to an investigating judge.

The investigative judge is an impartial judge, who is meant to lead the investigations, gathering all the evidence of potential guilt and innocence. The investigating judge will also give instructions to police units to conduct certain acts of the investigation and will conduct others in person. It is mostly in the context of judicial investigations entrusted with investigating judges that pretrial detention can be ordered, by another judge, or that certain constraints can be imposed on the suspects, such as an obligation to post bail.

Both the Prosecutor’s office and the investigating judge can work, notably in the case of white-collar crimes, with specialised investigation services. For instance, some squads are nationally competent for complex offences, such as the squad specialised in organised tax offences composed of both policemen and tax officers. Other specialised investigation services are related to Parisian judicial police, such as the financial research and investigative brigade, which processes cases of counterfeit currency or money laundering resulting from organised crime. This service can make use of techniques such as spinning or surveillance.

Regulators

The enforcement landscape also features many administrative authorities, some of them holding significant investigative and sanctioning powers. Their growing influence and the variety of their abilities raise issues of cooperation with the judicial authorities.

Three of them are particularly important.

Financial markets authority (AMF)

The financial markets authority was created in 2003, replacing other regulators and is competent to oversee financial markets, listed companies, financial intermediaries and products. It is in charge of regulating, authorising, supervising, controlling, investigating and, as the case may be, sanctioning. To do so, this administrative authority can notably lead its own investigations, with its own surveyors and inspectors, who can collect information, analyse data and hear witnesses or suspects. When the investigations reveal potential market abuse, the AMF board can decide to enter into a sanctioning process with the sanctioning commission. This latter can pronounce either disciplinary sanctions – such as a warning, a blame, banning practice temporarily or permanently – or financial penalties that can reach a maximum of €100 million or the proceeds of the offence times five.

When a criminal offence is ascertained, the financial markets authority must refer the case to the Prosecutor’s office.

In a decision of the French Constitutional Court of 18 March 2015, it was decided that from now on defendants in market abuse cases can no longer be prosecuted both before the AMF and the criminal courts, so that French law is bound to evolve to organise a clear way in which cases will now be dealt with – either by the AMF’s sanctions commission or by the criminal courts.

The competition authority

Created in 2008, the competition authority is specialised in the control of anti-competitive measures and concentration operations. The essential aim is to prevent arrangements, abuses of a dominant position or excessively low prices. Cases are not necessarily submitted by claimants as the authority may decide to lead investigations on its own. The investigations are lead independently by its own services, composed of law enforcement officers, agents from various French administrations, economists and engineers. It benefits from the ability to pronounce injunction measures, impose financial penalties, accept agreements and issue an opinion. The competition authority can also grant clemency when companies’ cooperation helps in finding anti-competitive measures.

The authority regulating electronic communications and posts (ARCEP)

ARCEP is in charge of regulating telecommunications in France. Its main function is to resolve disputes between telecommunication operators. Hence, it has a similar function to a standard court and the claimant can pick either the administrative or the judicial method, but it is usually more efficient and is less expensive. Two types of disputes can be resolved by the ARCEP: telecommunications access refusal and implementation of operators’ obligations. It has the capacity to lay down precautionary measures in cases of a serious breach. Finally, it benefits from a power of injunction and can render administrative decisions.

White-collar defence

The white-collar defence landscape has lately evolved significantly, both because of changes prompted by Parliament and of evolutions in prosecutorial approaches and of court precedents.

The Comparution sur Reconnaissance Préalable de Culpabilité (or French plea bargaining)

During the solemn hearing to mark the beginning of the court’s judicial year in 2015, Mr Hayat, president of the Paris Court of Justice, declared that the use of French plea bargaining for economic and financial offences could ensure more efficient criminal justice. Indeed, at the end of the investigation, the investigating judge could have the additional option to choose the plea bargaining method rather than referring a case to the court.

French plea bargaining was set up in 2004. It was initially made for offences punishable by a fine or a five years’ maximum imprisonment. Since 2011, it can be applied to all offences other than serious crimes.

Plea bargaining can be chosen on the initiative of the Prosecutor’s office, the person accused or his or her counsel and the investigating judge if applicable. It can only be applicable if the accused admits guilt.

The prosecutor then bargains with the person accused and proposes a sentence, which the latter can choose to accept or refuse. The sentence proposed cannot exceed half of the maximum incurred.

In case of acceptance, the sentence proposed must be approved by another judge during a validation hearing. If the judge estimates that the sentence is appropriate, and the case is proven, it will render an order of validation, which has the same value as an enforceable judgment. On the contrary, if the judge estimates that the sentence is inappropriate, he or she may refuse to validate the bargain. The case would eventually be examined by a standard criminal court.

Creation of a special chamber dedicated to complex business crimes’ cases

On 2 February 2015, the 32nd criminal chamber of the Paris Court of Justice was set up as priority for cases that are examined by the Financial Prosecutor’s Office. It is composed of specialised judges and is meant to examine the cases, according to Mr Hayat, in a few weeks. Hence, its main purpose is to reduce the significant length of time before a case can be judged.

Tougher sentences pronounced

In relation to this general tendency to strengthen the existing tools and create new ones to tackle white-collar offences, the sentences pronounced recently by the courts appeared tougher than before. Indeed, two symbolic examples prove that the fight against white-collar offences (for instance, tax fraud and market abuse) has become a priority.

The Ricci case

The trial of Ms Arlette Ricci, her daughter, her two real estate companies, her tax lawyer and her account manager took place in Paris from 16 February to 20 February 2015 at the Paris Criminal Court of First Instance.

All the defendants were brought to trial in relation to accounts held at HSBC PBRS and following the leak of the ‘Falciani data’, except for the tax lawyer who was prosecuted for assisting Ms Ricci in organising her insolvency. The debates focused mainly on Ms Ricci’s personal situation and her tax evasion.

Eventually, Ms Arlette Ricci was found guilty of all charges. She was prosecuted for (tax evasion, money laundering of tax evasion, organisation of personal insolvency) and convicted to a three-year imprisonment penalty, including two years’ suspended sentence, and to a €1 million fine.

Her daughter was convicted to an eight-month suspended sentence. The tax lawyer was convicted to a one-year suspended imprisonment penalty and to a €10,000 fine. The account manager was cleared of all charges and the real estate companies had their property forfeited.

The Pechiney case

The Pechiney case deals with market abuse. Four defendants were referred to the court for insider offences related to the takeover bid for the French company Pechniney by the Canadian company Alcan.

It is important to note that they had to face trial before the court even though the financial market authority had already pronounced significant financial sanctions (from €100,000 fine to €1.5 million). However, the court estimated that the non bis in idem rule, which prohibits double condemnation for the same facts, could not apply in this case and, thus, decided to prosecute them. This decision was rendered in September 2014, that is to say, before the evolution of French law prompted by the Constitutional Court’s decision of 18 March 2015.

In the Pechiney case, the defendants were convicted and sentenced to suspended prison sentences ranging from 12 to 18 months to fines from €1.25 million to €2.5 million.

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