The Penalties Applicable to Legal Entities Convicted for Corruption under French Law - Are the Administrative Consequences the Only Deterrent?

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Under French law, an act of corruption is exclusively subject to criminal liability; there is no administrative liability. Specific rules of administrative laws, however, which provide that a company convicted by a final judgment for bribery is excluded from participating in procurement contracts, can be analyzed as an administrative sanction applicable to the authors of acts of corruption.

The criminal penalties applicable to legal entities for international corruption:

Only criminal courts have jurisdiction to order penalties against the offenders.

The maximum fine applicable to legal entities convicted for corruption of a public foreign official is €750,000. Furthermore, a criminal court may order additional penalties such as:

Restrictions on running the business for a maximum period of 5 years;

Closure of one or several businesses for a maximum period of 5 years;

Judicial control of the company for a maximum period of 5 years;

Prohibition from participating in public procurement procedures (“participer à des marchés publics”) for a maximum period of 5 years;

Permanent prohibition or prohibition for a maximum period of 5 years from going public (“faire appel public à l’épargne”);

Prohibition from using credit cards or non-certified checks.

These additional penalties have never been ordered by French courts against a legal entity which has participated in a public procurement procedure in cases of international corruption.

In its October 2012 “Report on Implementing the OECD Anti-Bribery Convention in France”, the Working Group on Bribery, which severely criticizes the French judicial system, underlines that the French criminal penalties for bribery of a foreign public official lack efficiency and are not dissuasive. The OECD recommends that French courts make full use of the additional penalties, in particular, the exclusion from public procurement.

The administrative consequences of a conviction for bribery:

In theory, there is no administrative liability for corruption.

However, on the basis of the European Directives 2004/18/CE and 2004/17/CE, Article 43 of the French Public Procurement Code provides that a legal entity which has been convicted for a specific criminal offense (including corruption of a foreign public official), by a final judgment, within the last 5 years, cannot submit any tender to public procurement procedures with Public Contracting Authorities1.

This rule applies to procurement contracts, entered into between a public and privately held entities, signed and enforced in France.

Furthermore, the Ordinance of June 6, 2005 (the “Ordinance”) provides that a company, convicted of a specific criminal offense (such as corruption of a foreign public official) pursuant to a final judgment, cannot submit tenders to a procurement procedure:

1) organized by a Contracting Entity2 listed in Article 4 of the Ordinance (which includes State owned companies),

2) if the Contracting Entity exercises its activities of network operator in one of the sectors set out in Article 26 of the Ordinance (the distribution of gas and electricity, water, the furniture of public transportation services and postal services…).

Finally, it should be underlined that the fact that a company failed to disclose that it has been convicted for bribery when it tendered to a public procurement procedure may constitute a cause for a subsequent termination of the procurement contract3.

These specific rules of administrative law are totally independent from the penalties set out in the Criminal Code.

They apply automatically even where the criminal court did not sentence the company to the additional penalty of prohibition in participating to public procurement procedures.

The duration of the prohibition under public law is of 5 years as from the date of the final judgment of conviction.

Such a prohibition does not apply if the conviction for bribery is not final (i.e. if the company lodged an appeal, either before the Court of Appeals or the French Supreme Court (“Cour de Cassation”), against the concerned judgment).

Under French public law, since this prohibition is mandatory and automatic, its duration cannot be reduced by public authorities.

Such a sanction, which the criminal courts have the discretionary power to order, is extremely severe as it could have dire consequences on a company’s business, especially in a country like France where many economic operators are public bodies or owned by the State.

It does not take into account the fact that the company has, since the acts of corruption were committed, implemented effective remediation measures to prevent new acts of corruption.

The European consequences of a conviction for bribery in France:

A final conviction for bribery by a French criminal court may have also some legal consequences when entering into public contracts in other Member States of the European Union.

Pursuant to Article 45 of the Directive 2004/18/CE, an entity convicted of corruption in one Member State is prohibited from submitting a tender to public procurement procedures with Public Contracting Authorities in every country of the European Union.

Therefore, should a company be convicted of corruption in France, it would be prohibited from participating in public procurement procedures with Public Contracting Authorities4, not only in France, but also in all Member States of the European Union.

It should be noted that the Directive 2004/18/CE does not provide any duration of this prohibition, but refers to domestic laws.

It should also be underlined that the European institutions are currently reviewing a proposal for a new Directive 2011/04385 which would amend the Directive 2004/18/CE.

This proposal of Directive 2011/0438 suggests that the exclusion, set forth by Article 45 of the Directive 2004/18/CE, be suspended if the tenderer proves “that it has compensated any damage caused by the criminal offense or misconduct, clarified the facts and circumstances in a comprehensive manner by actively collaborating with the investigating authorities and taken concrete technical, organizational and personal measures that are appropriate to prevent further criminal offenses or misconduct”.

The administrative consequences of a final conviction for bribery are indeed more severe, and much more dissuasive than the criminal penalties which are usually pronounced by French criminal courts.

The adoption of the new proposal of Directive 2011/0438 may permit to mitigate the severe effects of the actual French legislation by allowing a bidder, despite its conviction for bribery, to participate in public contract provided that it has taken appropriate measures to compensate any damage caused by its misconduct and to prevent further criminal offenses.

1) Public Contracting Authorities (« Pouvoirs adjudicateurs ») are States, regional or local authorities and their public institutions governed by public law.

2) Contracting Entities (« Entités adjudicatrices ») are State-owned companies or public undertakings, over which the Public Contracting Authorities may exercise directly or indirectly a dominant influence based on their ownership, their financial participation therein, or the rules which govern the Contracting Entity.

3) Which is not the case if, at the time it submitted its tenders, the economic operator has not been yet been convicted by a final judgment.

4) Public Contracting Authorities are the European Union Member States, their Regional and Local Authorities, and their Public Institutions.

5) 2011/0438 (COD) Proposal for a Directive of the European Parliament and the Council on public procurement.

Topics:  Administrative Fines, Bribery, Compliance, Corruption, Criminal Sanctions, EU, Legal Entities, Penalties, White Collar Crimes

Published In: Administrative Agency Updates, Business Organization Updates, General Business Updates, Criminal Law Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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