Q: ‘Did you conduct an internal investigation at the time?’ A: ‘By virtue of which text?’

Wednesday 14 September 2022

Emmanuel Moyne

Bougartchev Moyne Associés AARPI, Paris

​​​​​​​emoyne@bougartchev-moyne.com

Nathan Morin

Bougartchev Moyne Associés AARPI, Paris

nmorin@bougartchev-moyne.com​​​​​​​

‘Did you conduct an internal investigation at the time?’

This is how an investigating judge questioned our client during a first appearance hearing concerning 20-year-old facts.

The question did not fail to surprise us as, under French law, today as in 20 years ago, internal investigations are/were not regulated as such and there is/was no obligation on the part of the company should it become aware of any potential wrongdoing.

Nevertheless, this assertion needs to be balanced in at least three respects. First, the lack of a specific legal framework has never prevented companies from conducting internal investigations on their own initiative. Second, French law now includes several sources of legislation and case law which encourage companies to conduct internal investigations and dictate some rules to be observed in this area. Finally, through the publication of guides and guidelines, the French Anti-Corruption Agency (AFA) and the National Financial Prosecutor’s Office (PNF) aim to compel companies to conduct internal investigations.

The French normative context for internal investigations

The adoption of Law No 2016-1691 of 9 December 2016 on transparency, the fight against corruption and the modernisation of economic life, known as ‘Sapin II’, was an anti-corruption milestone. Although it contains no provision on internal investigations, its aim is to prevent and detect corruption and influence peddling. The new law was a starting point for both lawyers and prosecutors for internal investigations insofar as an internal investigation is one of the processes available to a company in detecting such wrongdoings.

Moreover, Articles 8 and 17 of Sapin II respectively require:

  1.  the implementation by companies with more than 50 employees of ‘internal procedure for collecting and processing alerts’ concerning ‘a crime, an offence, a threat or harm to the general interest, a violation or an attempt to conceal a violation of an international commitment duly ratified or approved by France, of a unilateral act of an international organisation taken on the basis of such a commitment, of the law of the European Union, or of the law or regulations’; an
  2. the implementation, by companies with more than 500 employees and a turnover of more than €100m, of an anti-bribery system including, in particular, ‘an internal whistleblowing system designed to enable the collection of reports from employees concerning the existence of conduct or situations contrary to the company’s code of conduct’.

In the area of human and environmental rights, the law of 27 March 2017 on the duty of care of parent companies and ordering companies, also requires that companies subject to this law implement a due diligence plan. It must specifically include ‘a mechanism for alerting and collecting reports relating to the existence or realisation of risks of serious violations of human rights and fundamental freedoms, the health and safety of individuals and the environment, resulting from the company’s activities.

Within this framework, companies are required, under threat of sanctions, to follow up on alerts and to inform whistleblowers of the action taken.

In the vast majority of cases, the processing of the alert and the response to it will require the implementation of an internal investigation, which will vary in scope depending on the seriousness of the facts. Nonetheless, it will be in the company’s interest to formalise each step, in particular by drafting an investigation report or by drawing up a verbatim report at the end of the interviews carried out, so as to be able to justify, if necessary, that it has fulfilled its obligation to process the alert.

It should also be noted that in anti-competitive matters, French law provides for a leniency programme which offers companies that report anti-competitive practices and provide the corresponding evidence, a reduction in the fine incurred. The level of exemption depends on the rank of the reporting company and the degree of added value of the evidence provided.[1]

The leniency programme is a strong incentive for the company to conduct internal investigations to detect potential anti-competitive practices.

French labour case law: triggering and organising internal investigations

Apart from this purely normative framework, in matters of harassment, the labour courts consider that when the employer becomes aware of potential harassment within the company, they are obliged to conduct an internal investigation because of their obligation to prevent professional risks.[2] An employer who fails to conduct such an internal investigation in the event of suspicions, or who delays conducting such an investigation, is in breach of its safety obligation and is liable towards the victims.[3] This failure also justifies the termination of the employment contract to the sole detriment of the employer.[4]

Consequently, the labour courts have for some time had the opportunity to specify the rules that companies must observe with regard to internal investigations, whether regarding the conditions of access to employees’ email,[5] the opposability of monitoring measures implemented within the company,[6] the necessity and proportionality of the investigative measures taken,[7] the period of time between the employer’s discovery of the facts and when the employee may be subject to disciplinary proceedings, which can be delayed when an internal investigation is necessary,[8] the conditions under which an employee can be questioned,[9] and the questions of admissibility of evidence in the context of subsequent proceedings.[10]

Eventually, and as internal investigations are regularly carried out by lawyers, it is worth mentioning that, in its internal regulations, the Paris Bar Association has specified the ethical rules to which lawyers are subject when carrying out such investigations on behalf of their clients. The Conseil National des Barreaux working group on internal investigations has also issued a substantial report on the role of lawyers in such investigations.

All these standards and case law solutions encourage companies and their lawyers to conduct internal investigations and/or provide a framework for the conduct of the investigations. Nevertheless, under French law, an internal investigation is not mandatory, except in matters of harassment. It is this aspect of positive law that the French authorities would like to see changed.

The desire of the French authorities to force a company to conduct internal investigations

On 26 June 2019, the AFA and PNF published joint guidelines for the implementation of the Judicial Public Interest Agreement (CJIP), a French-style deferred prosecution agreement (DPA). The message was relatively clear. The benefit of a CJIP is subject to the full cooperation of the company, which would be deduced from ‘the spontaneous disclosure of the facts’ and ‘the implementation of an internal investigation’ by the company, all conditions not provided for by law. Notwithstanding, the AFA and the PNF indicated that they expected companies to forward the internal investigation report to the public prosecutor’s office.

More recently, these authorities have published a draft practical guide on internal anti-corruption investigations, which has been submitted for consultation. The purpose of this guide is to provide direction to companies on best practices to be observed during the various stages of an internal investigation.

However, the reader should not be misled. Far from being a simple pedagogical tool intended to help companies, this draft guide also reflects the desire of the PNF and the AFA to commit companies to a normative approach that no text requires.

The AFA and the PNF introduce this guide as ‘not binding and not creating any legal obligation’ for the company. Nevertheless, the internal investigation is presented as ‘an integral part of the anti-bribery system’, even though neither the internal investigation nor its formalisation are among the obligations of the company under the Sapin II law.

In fact, from the point of view of these authorities, the internal investigation would be a tool available not to the company itself but to the judicial authority, the company being urged to denounce the slightest potentially criminal act that it becomes aware of, both before and after a possible internal investigation.

As would have been thought, and in line with the guidelines for the implementation of the CJIP, the AFA and the PNF expect companies to ‘transmit the investigation report to the judicial authorities’.

Much more surprisingly, the AFA and PNF consider that ‘if internal control or audit activities reveal facts of a criminal nature, even before an internal investigation is initiated, the management body is advised to bring them to the attention of the judicial authorities without delay’. According to them, ‘the company should give priority to informing the judicial authority beforehand’.

Finally, and in order to compel the company outside of any legal obligation, the benefit of a CJIP is suppressed to ‘the early and sincere denunciation by the company to the judicial authority of the criminal acts of which it has knowledge and the communication of the internal investigation’. Conversely, ‘any delay in the transmission of information resulting from the internal investigation or any partial communication of the elements gathered by the company may be considered as an aggravating factor when calculating a possible CJIP fine’. To do otherwise could lead the company to ‘be held liable for the dissipation of evidence or fraudulent consultation’ or ‘for the dissipation of criminal assets that may be apprehended’.

This approach is questionable in many ways. First, under French law, there is no legal obligation for companies to denounce criminal acts that they become aware of. In contrast, there is a fundamental right not to self-incriminate. Second, there is no point in systematically informing the judicial authorities prior to any internal investigation as, by definition, the purpose of an internal investigation is precisely to establish or corroborate facts which, at the time it is launched, are only suspicions. Third, in the vast majority of cases, the company is in fact unrelated to the actions of its dishonest employees, when it is not itself the victim. Finally, even if the company is likely to be held criminally liable for the actions of one of its employees, it has the absolute right to choose how to defend itself in an informed manner, that is, in light of the results of a thorough internal investigation.

Ultimately, as the narrative related above illustrates, even though the French legal framework is particularly permissive, a company that does not diligently conduct an internal investigation in accordance with the French authorities’ recommendations may be perceived by these same authorities as an accomplice to the facts in question.

 

Notes

[1]         Art L 464-2, French Commercial Code.

[2]         Cass soc, 29 June 2011, No 09-70.902; Cass soc, 27 November 2019, No 18-10.551.

[3]         CA Paris, 22 June 2021, No 19/05860.

[4]         CA Douai, 28 May 2021, No 1678/21.

[5]         Cass soc, 16 May 2013, No 12-11.866; Cass soc, 18 October 2011, No 10-26.782; Cass soc, 9 September 2020, No 18-20.489.

[6]         Cass soc, 5 November 2014, No 13-18.427.

[7]         Cass civ 1ère, 25 February 2016, No 15-12.403.

[8]         Cass soc, 2 June 2017, No 15-29.234; Cass soc, 16 March 2010, No 08-44.523.

[9]         Cass crim, 7 October 1997, No 96-81.845.

[10]        Cass civ 2ème, 7 October 2004, No 03-12.653; Cass soc, 29 January 2008, No 06-45.814.

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