Plea bargaining: What lies ahead for individuals?

Article written by Capucine Lanta de Bérard and Pauline Dufourq, published on Dalloz Actualité (https://www.dalloz-actualite.fr) on September 9, 2019

09 September 2019

Capucine Lanta de Bérard Pauline Dufourq

First CRPC Following a CJIP

On January 29, the Paris District Court issued, in the HSBC case, the first order approving a procedure for appearing in court based on a prior admission of guilt proposed by the public prosecutor to a former executive after the corporate entity had entered into a judicial agreement in the public interest.

The Sapin II Act has transformed our legal landscape by enabling a new form of negotiated justice through the adoption of Articles 41-1-2 and 180-2 of the Code of Criminal Procedure, which establish the mechanism of the judicial agreement in the public interest (“CJIP”). The introduction of this mechanism, reserved exclusively for legal entities, raises the question of the fate of the individuals involved in the disputed facts, who are expressly excluded from this measure—unlike under the U.S. Deferred Prosecution Agreement. This development raises questions about the criminal policy choices that will be implemented with respect to individuals, and about the possible “negotiated” settlement that could be considered for them when the facts warrant it.

Among the potential solutions, the procedure for appearing in court upon prior admission of guilt (“CRPC”) offers an interesting prospect when the facts are established and acknowledged, similar to the procedure applied against the former CEO of HSBC Private Bank (“HSBC”) following the conclusion of a CJIP in the same case.

THE BACKGROUND OF THE HSBC CASE

The HSBC case is one of the first examples of this new form of negotiated justice. On October 30, 2017, the first CJIP was signed by the financial prosecutor and the Swiss bank. In the nine-page agreement, following a four-year investigation, the bank acknowledged the facts and their criminal classifications and agreed to pay a public-interest fine of €157,975,422, as well as damages totaling €142,024,578 to compensate the French government for the harm suffered. The agreement was approved on November 14, 2017.

For the record, the bank was prosecuted for soliciting French prospects and residents within France for banking or financial services, and for aggravated money laundering related to tax fraud

The investigations revealed that the bank, through “some of its client relationship managers,” had knowingly assisted numerous French taxpayers who wished to evade taxation in whole or in part and had not declared to the tax authorities the assets they held in bank accounts opened with HSBC.

The criminal status of the individuals potentially involved in the disputed acts remained undecided, even though the CJIP’s statement of facts noted that the bank had its own board of directors and its own chief executive officer, under whose authority were the employees responsible for the banking activities that were clearly in dispute.

In doing so, the agreement outlined the possible involvement of the legal entity’s governing body, which is necessary to establish the entity’s criminal liability under the standard provisions of Article 121-2 of the Penal Code (cited in the CJIP’s validation order).

IMPLEMENTATION OF A CRPC PROCEDURE FOLLOWING THE CJIP

The judicial agreement in the public interest reached in the HSBC case was signed as part of a judicial investigation, which logically continued with respect to the other parties to the proceedings, as provided for in Article 180-2 of the Code of Criminal Procedure, opening the possibility of a subsequent referral to the criminal court for the other parties implicated.

Through a procedural mechanism similar to that allowing for the implementation of a CJIP during the preliminary investigation, the investigating judge has the option—if the person under investigation admits to the facts and accepts the criminal charge as framed—to order, at the request of or with the consent of the public prosecutor, the person under investigation, and the civil party, to refer the case to the public prosecutor for the purpose of initiating a procedure for an appearance based on a prior admission of guilt (Code of Criminal Procedure, Art. 180-1).

Nearly a year after the bank signed a CJIP, the bank’s chief executive officer was thus subject to a guilty plea proceeding as provided for in Articles 495-7 et seq. of the Code of Criminal Procedure. He was accused of:

while serving as chief executive officer (CEO) of HSBC Private Bank (Switzerland) SA—which was not authorized to operate in France and of which he was a member of the Global Executive Committee—having, in 2006 and 2007, unlawfully solicited or caused others to solicit French residents, in particular to receive their funds, conduct credit transactions, advise or assist them with wealth management, and hold or manage their financial instruments;
as well as, in 2006 and 2007, in his capacity as Chief Executive Officer (CEO) of HSBC Private Bank (Switzerland), having routinely facilitated—by using the resources available through the bank’s operations—transactions involving the investment of proceeds from income tax fraud, on wealth or corporate taxes committed by taxpayers of the French Treasury (through the clandestine opening of bank accounts in the books of HSBC Private Bank Switzerland outside of France and the provision to said taxpayers of methods designed to enable them to conceal, invest, or convert their assets—such as digital accounts, the establishment of offshore legal entities or other intermediary entities such as foundations or trusts, a post-office box service, a service providing funds under the guise of fictitious loans, and directing clients toward financial products that allowed them to avoid declaring their assets to the tax authorities), with the total value of the assets in question estimated at a minimum of €1,638,723,980.

The approval order dated January 29, 2019—a two-page document—stated that the individual’s guilt had been established with respect to the charges as set forth in the petition, that the individual admitted to the charges, and that he accepted the sentences proposed by the public prosecutor.

The former director was sentenced to a twelve-month suspended prison term and a civil fine of 500,000 euros, and was exempted from having the conviction recorded in Section 2 of his criminal record.

THE IMPACT OF THE CJIP SYSTEM ON THE FATE OF INDIVIDUALS

The question of the fate of individuals under this new negotiated justice system is particularly acute, given that this new, more transactional form of justice is implemented through confidential discussions taking place exclusively between the public prosecutor and the legal entity represented by its current executives, with natural persons who may be involved being excluded from these discussions—even though they may affect the assessment of the facts in question and their own criminal status.

The legislature’s decision to exclude individuals from the public-interest judicial agreement framework thus leaves it to the public prosecutor’s office to determine their fate pursuant to the principle of prosecutorial discretion (Code of Criminal Procedure, Art. 41-1-2, para. 7).

This situation was recently clarified by guidelines drafted jointly by the National Financial Prosecutor’s Office and the French Anti-Corruption Agency, which state on this subject: “Notwithstanding the conclusion of a CJIP, the legal representatives of the implicated legal entity remain personally liable. The public interest requires that such prosecutions be brought whenever legal conditions permit. Internal investigations conducted by the company must therefore also contribute to establishing individual liability.”

In other words, companies are encouraged, as part of their internal investigations, to identify individuals who may be held liable as well as key witnesses. According to the guidelines, the company must also provide the prosecutor’s office with relevant documents and, where applicable, transcripts of interviews conducted by the company or its counsel with witnesses or individuals who may be involved in the events. The guidelines emphasize the need to ensure “the preservation of evidence and, in particular, the truthfulness of testimony,” which are indeed essential requirements not only for establishing the truth but also for respecting the rights of the defense. This requires companies to adopt “ethical” internal investigation procedures that are adapted to the French judicial system.

We can, however, expect that recent developments in the CRPC procedure—specifically, the addition of a paragraph to Article 495-8 of the Code of Criminal Procedure that formalizes the practice of certain prosecutors to propose the exclusion of a conviction from criminal record entries No. 2 or No. 3—will lead to greater use of this opportunity. Similarly, the provision in the same article allowing the prosecutor to inform the individual or their attorney, by any means, of the proposals they intend to make before recommending a sentence strikes us as a very encouraging sign for the development of these mechanisms toward genuine dialogue.

Furthermore, such a procedural approach is not without risk, as evidenced by the failure of the CPRC in the UBS case. A former executive of the bank had decided to use the CPRC mechanism, which was not approved by the judge; as a result, he was referred to the criminal court to stand trial alongside his former employer. This difficulty—even if it appears to remain marginal—raises numerous questions regarding the actual scope of the admission of facts made during the CPRC proceedings, the confidentiality of which remains poorly protected in practice.

In light of these observations, only the promotion of a negotiated procedure that is attractive and protective of the rights of the defense will encourage individuals to resort to this new form of negotiated justice. It is worth recalling the famous Tesco/Rogberg case of 2019, in which all of the dismissed senior executives were acquitted after a Deferred Prosecution Agreement (DPA) was reached between the Serious Fraud Office (“SFO”) and Tesco; or the 2018 Alstom/Hopkins case, in which a British national and former Alstom employee refused to plead guilty and challenged the jurisdiction of the U.S. Department of Justice and, by extension, the application of U.S. anti-corruption law. The U.S. Court of Appeals ruled in his favor against the U.S. Department of Justice…

THE PARALLEL WITH THE U.S. FRAMEWORK

This framework outlined in the recent guidelines is reminiscent of the measures in effect in the United States, which were recently reformed. As a reminder, the U.S. Department of Justice (“DoJ”) had defined the applicable standards through a framework introduced in 2015 known as the “Yates Memo.” This so-called “all-or-nothing” approach required companies to produce all information regarding individuals involved in the disputed conduct in order to qualify for leniency (DoJ’s Principle of Federal Prosecution of Business Organizations, Focus on Individual Wrongdoers).

The new policy marks a shift by now allowing companies to “identify the individuals substantially involved in or responsible for the violation in question” (G. Colwell, T. Zeno, and C. Goldstein, “DOJ Relaxes ‘All or Nothing’ Yates Memo,” The Anticorruption Blog, November 29, 2018).

Attorney General Rod J. Rosenstein had announced this policy shift in a speech last year, advocating for a more pragmatic approach: “When we offer only a binary choice—full credit or no credit—experience shows that this delays the resolution of certain cases while offering little or no benefit.” Companies were, in fact, required to conduct a thorough analysis before initiating any cooperation. This requirement also had the effect of exacerbating internal tensions (DoJ, Deputy Attorney General Rod J. Rosenstein delivers remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act, November 29, 2018).

TOWARD THE EMERGENCE OF A NEW FORM OF NEGOTIATED JUSTICE FOR INDIVIDUALS?

Currently, only six judicial agreements in the public interest have been concluded, so it would be premature to draw conclusions about the outcome for individuals following the conclusion of such an agreement.

The question of what strategy an individual should adopt is particularly delicate when the individual is expressly identified by the company to which investigative authority has been partially “delegated” and which led to the conclusion of a CJIP. This situation appears all the more sensitive when the CJIP is concluded following a preliminary investigation, as Article 180-2 of the Code of Criminal Procedure expressly requires the corporate entity to acknowledge the facts and accept the criminal classification applied, which closely resembles the prerequisites for a CRPC, even though in a CJIP no guilty verdict is ultimately handed down and the agreement does not result in a conviction. The statement of facts on which the prosecutor and the legal entity agree in the CJIP, as well as the need to identify, at a minimum, the body or representative capable of incurring the liability of the legal entity in question, pursuant to Article 121-2 of the Penal Code, necessarily involves reference to the role of certain natural persons.

In France, as in the United States, entering into an agreement does not imply an admission of guilt and is not binding on natural persons; however, in practice, these agreements contain very comprehensive factual statements and criminal classifications (C. Ascione Le Dreau and B. Grundler, “The Fight Against Corruption—Natural Persons Facing Plea Bargaining—David vs. Goliath?”, International Journal of Compliance and Business Ethics, Feb. 2019. Comment 31), so that the individual’s freedom of choice appears, at first glance, to be compromised once the agreement is signed.

One interesting avenue for consideration that appears to be emerging is the use of the CRPC procedure—similar to the procedure followed by the former executive of HSBC Private Bank Switzerland—which can be initiated by the public prosecutor’s office or by the individual concerned and their attorney. However, this procedure will only be feasible once the facts have been established, as required by Article 495-9 of the Code of Criminal Procedure, which requires the judge responsible for approval to “verify the facts and their legal classification.” The circular of September 2, 2004, regarding Law No. 2004-204 of March 9, 2004, which introduced the CRPC procedure, noted that this procedure was “in its very essence very different from the ‘plea bargain’ procedures that exist in Anglo-Saxon countries, in which priority is given to the defendant’s admission of guilt—with the prosecuting authority able to negotiate and drop certain charges in exchange for a guilty plea and acceptance of sentences on other charges—rather than to the reality of the acts that were actually committed.”

An analysis of the order in question highlights the various advantages of this mechanism. It effectively allows for a swift resolution of the case, avoids the uncertainties of a lengthy, costly, risky, and more high-profile trial, and enables the parties to benefit from a “negotiated penalty.”

In this case, the criminal penalty imposed does indeed appear balanced in light of the facts described, the defendant’s character, and the severity of the various offenses charged (including 10 years’ imprisonment and a €750,000 fine for the offense of aggravated money laundering, Art. 324-2, 1°, of the Penal Code).

However, despite these indisputable advantages, several factors could temper the appeal of such a mechanism. First, unlike the CJIP, the CRPC requires an admission of guilt. The effects of a conviction may be limited, as in this case, when the sentence proposed by the public prosecutor’s office provides for an exemption from entry in Bulletin No. 2 of the person’s criminal record. However, the conviction remains recorded in Bulletin No. 1 of the criminal record.

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