Sapin II - A step forward in regulation?

The letter of the law would seem to indicate that this is the case. The French Anti-Corruption Agency (AFA) is pushing for it, and its leadership are claiming responsibility for it.

This drive towards vertical company governance is evident in several respects.

While it does not explicitly refer to top-down modes of governance, the composition of the law itself makes every effort to establish this as the norm: for starters, in article 17 the law explicitly singles out company directors and not the companies themselves (art 17. l. 1° & 2°), and secondly, because after having stated that directors are responsible for the implementation of these measures, the law also indicates that its articles apply to the company itself, as well as to all affiliates associated with that company. 

In other words, the director bears ultimate responsibility for the measures, which are applied through his or her office, from the parent company to all of its affiliates.

It’s important to note that the law also applies to affiliates of overseas companies doing business in France (once these affiliates go beyond the cumulative thresholds of €100 million and 500 employees), and that the AFA has not hesitated to issue warnings and fines to foreign companies.

The second place we see indication of the top-down approach, though less obvious, involves the combination of the eight obligations outlined in article 17, which the AFA has cited in a number of its operations, and which its inspection reports have now confirmed: at the top of its list of objectives is the ‘corruption risk map’, from which the following obligations are drawn: 

• A code of conduct and sanctions regime, which aims to raise awareness and protect employees from what the director has identified as corruption risks.
• Accounting control procedures, addressing these same risks in an operational manner.
• Training initiatives aimed at those with the greatest level of exposure to the risks identified, and their managers.
• Monitoring procedure for the measures implemented, with the aim of ensuring the director retains control over their obligations under article 17.

As such, the director gives orders to their company, which gives orders to their affiliates, applying a pyramid system in which the corruption risk map is the source of inspiration from which practically all measures are drawn.

The final sign of verticality, which rubber-stamps the central importance of the director in these measures, is that the AFA’s inspection report begins, regardless of whether each of the eight obligations have been implemented or not, with a highly detailed section on ‘the responsibilities of the entity under inspection.’ This section, which in principle does not reflect article 17 to the letter but nonetheless constitutes a clinical observation of the various ways in which directors, and they alone, have tackled the question of how to combat corruption. This includes formal approval of measures by directors, communications from directors, human and material resources allocated by directors, and the career paths of people in charge of anti-corruption efforts – all in all, this amounts to a full compliance review, tracing directly back to the company’s representatives.

It is when reading this convergence of requirements incumbent upon directors that we realise the Sapin II law is quite atypical in our current world, in that it seems to make any delegation of responsibility difficult to implement, and that this state of affairs is applied in a thorough manner by the AFA. 

Up until now, companies have had to deal with various technical requirements whose implications varied in their restrictiveness, but the director could always delegate via the various capabilities afforded under the law: labour laws and legal responsibility through the HRD, companies for directors in the USA, for financial directors, and not to mention compliance issues.

As such, up until now a director could – completely legitimately – pass on certain technical or regulatory obligations to various delegates.

Sapin II is not only complex due to the fact that the subject of corruption has been relatively underexplored by companies who had not yet been exposed to the FCPA or UKBA, or that it represents a significant technical challenge – far from it. Sapin II creates its own (essentially independent) reference base, defined by the law itself, according to which the director must be involved to a much greater degree than they would be in any other ‘technical’ area.

As we see it, from the 1^st of June 2017, when implementing anti-corruption measures directors must now keep 3 key principles in mind – each more difficult to achieve than the last – if they are to meet the demands of the law and the AFA:  

• It is against everyday practices that companies must fight, at the behest of the director, when even these practices have never been considered morally (or by extension legally) objectionable until now.
• There is no placebo or substitute for these anti-corruption measures. Documentation ‘recycling’, for example, is not compatible with the implementation of anti-corruption measures. Those companies who attempted to gain recognition of the fact that their responses to such-and-such obligations were ‘close enough’ to the requirements of the Sapin II law were mistaken: when it comes to the rules, standards and reference base for Sapin II, no deviation whatsoever is admissible.
• There is only the slightest wiggle room for a director to delegate this task without reasonable supervision to an employee; even less so if this employee’s position is far beneath the director’s on the hierarchical pyramid. Delegation is no longer permitted for this specific subject, and if it is tolerated, this comes at the cost of being someone close to the director in the company hierarchy.  This will act as a guarantee of credibility for the other employees, no doubt.

And so we come full circle with omnipresent vertical requirements, legal structures, hierarchical bodies, and exclusivity in terms of business standards. The way in which article 17 of the law is administered by those who are in charge of its application is rekindling the notion of directorial responsibility. In addition to handling strategy and piloting the company’s economic policy, directors are now required to be fully involved in a technical compliance issue, something which is unprecedented.

In 2016, AFA Director Charles Duchaine indicated that he was not about to sit on the sidelines. When we look at the legal text, the declarations issued by the Director and the nature of the inspections carried out, we are inclined to take him at his word. It is highly likely that at this pace, authorities in North America will conclude that France is (finally) taking the fight against corruption seriously, and will become an important and effective ally in this regard. This will certainly lead to heightened national credibility, but at the cost of significant efforts on behalf of those who lead our companies.

For more information on Sapin II, contact Francois Nogaret, Partner at Mazars specialising in compliance and ethics.