I. Corporate liability deriving from criminal activity
1. What it is the nature of corporate liability deriving from criminal activity? What is its legal basis?
According to Article 121-2 of the French Criminal Code, legal persons may be held liable for criminal offenses committed on their behalf by any of their representatives or bodies. Between 1994 and 2005, the liability of legal persons was limited to offenses for which the liability was expressly provided for by law. Since 31 December 2005 (Law No 2004-204 of 9 March 2004), this principle of specialty has been removed and legal persons may be held liable for any criminal violation of French law.
The liability of a legal person may therefore arise out of offenses committed by their collegial bodies such as the board of directors or the supervisory board, or individual legal representatives. The individual representatives include individuals such as: (i) directors, managers, general managers and presidents, who are vested, by the law or the bylaws, with the power to administrate, manage and control the entity; and (ii) de facto directors or managers, but also persons, vested with delegation of powers (including employees) or acting within a specific mission for the company (such as liquidators). As regards the liability arising out of acts of employees, and given that the delegation of powers does not need to be made in writing, certain Supreme Court cases refer to the status or quality of the employee to determine whether they are acting as “representatives” of the legal person.
Moreover, the act must have been committed on behalf of the legal person. This concept is not defined by law, but covers notably all acts that are in the interest of the legal person. However, the courts have also held a legal person liable where the offense simply occurred in the conduct of its activity, even when the entity did not benefit from it in any way. This is particularly the case for offenses arising out of failure to act in accordance with regulations relating to safety or supervision. More generally, legal persons’ interest can be considered to exist whenever the representative or body committing the offense did not pursue its own personal interest.
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
Since 31 December 2005, corporate liability may arise for any criminal violation of French law (please see above under Section I).
Various administrative agencies in France, in particular the independent regulatory authorities (Autorités administratives indépendantes or AAIs), are empowered to conduct inquiries or investigations and pronounce administrative sanctions, including administrative fines against legal entities. Note that sanctions adopted by the administrative authority do not prevent criminal proceedings/sanctions, where available.
Administrative sanctions can also be pronounced by organizations other than AAIs, such as the French Anti-Corruption Agency (as defined in Section III), created by the so-called Sapin II Law of 9 December 2016 (the “Sapin II Law”).
3. Identification of companies and entities to which liability may apply
Pursuant to Article 121-2 of the French Criminal Code, all legal persons, excluding the French state, may be held liable for a criminal offense under French law.
Moreover, legal entities governed by public law (municipalities, regions, provinces and other public bodies) are liable only under specific circumstances. Indeed, Article 121-2 of the French Criminal Code provides that such public bodies are criminally liable only for offenses committed in the conduct of activities that can also be delegated to another public or private body through a public service delegation agreement.
Therefore, public bodies are not liable for offenses committed while performing activities that fall under the prerogatives of public power, which may never be delegated to other bodies or entities. Finally, entities that do not hold a legal personality, such as de facto companies, may not be liable under criminal law; the liability falls back to the persons who are part of such entity.
The above article also specifies that such responsibility is not exclusive of individual responsibility for the persons involved.
4. Corporate liability for crimes committed abroad by representatives or subsidiaries
Pursuant to a general principle of individual criminal liability, a legal person may not be held liable for the offenses committed by its subsidiary, as the entities are two separate and distinct legal persons.
The abovementioned principle is true unless the individuals representing the subsidiary may be considered to have acted as representatives of the legal person pursuant to Article 121-2 of the French Criminal Code, or the parent company has acted as an accomplice pursuant to Article 121-7 of the French Criminal Code.
As indicated above in question 1, the notion of representative may be construed widely and could, for instance, cover a director of a foreign subsidiary to whom powers have been delegated by the parent company.
Pursuant to Article 121-7 of the French Criminal Code, any person having knowingly, by aiding or abetting, facilitated preparation of commission of a felony (crime) or a misdemeanor (délit) is considered to have acted as an accomplice. The same applies to any person who, by making a gift, promise or threat or by abusing its authority or powers, causes an offense to be committed, or gives instructions for its commission.
Under French law, an accomplice is sanctioned as the author of the offense. Moreover, Article 123-6 of the French Criminal Code states that a person may be held liable as an accomplice under French criminal law; also, where a felony or a misdemeanor has been committed abroad. However, the application of this Article is limited to cases where: (i) the underlying offense is punishable both in France and in the country where it was committed; and (ii) a foreign court has rendered a decision confirming that the underlying offense was committed.
Consequently, a French parent company may be held liable as an accomplice in France to felonies or misdemeanors committed by its subsidiary abroad under the conditions set out above. Should the parent company have participated directly as an author in the commission of the offense, it would also be held liable for the offenses committed in part by its subsidiary.
Several articles of the French Criminal Code also allow the extension of the application of French law to offenses committed in whole or in part abroad.
- Article 113-2 of the French Criminal Code states that French criminal law is applicable to offenses in the territory of France, if at least one of the constituting elements of the offense took place in France. Case law has also broadened the scope of application of French criminal law to offenses that, although committed abroad, appear to form an indivisible offense with criminal acts committed in France.
- Article 113-6 of the French Criminal Code states that where the author is a French national, French criminal law applies to any felony committed abroad and to any misdemeanor, provided that the offense is also punishable in the country in which the offense is committed.
- Article 113-7 of the French Criminal Code states that where the victim is French, French criminal law applies to felonies and misdemeanors punishable by imprisonment committed abroad.
Consequently, if a representative of French nationality commits an offense abroad on behalf of the company or where a representative (of any nationality) of the company commits an offense abroad, the victim of which is a French national, the company may be held liable under French law under the conditions set out above.
The territorial reach of French law as regards corruption-related offenses has been recently extended by the Sapin II Law. French authorities will henceforth be able to bring charges for corruption occurring outside of France, not only against French nationals or against persons who mainly reside in France, but also against individuals and legal entities having all or part of their business on French territory. This constitutes a significant expansion of corporate liability as legal entities carrying out all or part of their economic activity in France are from now on subject to an extraterritorial application of French anticorruption laws. Finally, the requirement of dual criminality (ie, the action represents an offense under laws of both France and the country where it occurred) was also removed and prosecutors will be entitled to pursue the offender even in the absence of a complaint filed by either the victim or the relevant foreign authority.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
Pursuant to the fundamental principle of personality of criminal liability, only the author of a criminal offense can be prosecuted and punished for it. This principle flows from Article 121-1 of the French Criminal Code, which states that “no one is criminally liable except for his own conduct.”
This principle leads to excluding liability when a legal person ceases to exist. Therefore, in the context of transactions, it is necessary to distinguish between operations that involve a loss of legal existence (mergers, total demergers) from those that do not (transformations, partial demergers, transfers of business as a going concern).
- Transactions not involving any loss of legal existence under French law
- Transformations: The company, although transformed into a different type of company (eg, transformation of a limited liability company [société à responsabilité limitée or SARL] into a joint-stock corporation [société anonyme or SA]) continues to be liable for offenses committed before the date on which the transformation became effective.
- Partial demergers: The demerged company remains liable for crimes committed before the date on which the demerger became effective.
- Transfers of business as a going concern: The company, the business of which has been transferred as a going concern, remains liable for offenses committed before the date on which the transfer became effective.
- Transactions involving loss of legal existence under French law
- Mergers: The company resulting from the merger is not liable for offenses committed by the target companies. The absorbing company, however, continues to be liable for offenses that it has already committed before the merger, unless it is a new legal entity, in which case it may not be liable for offenses committed by the target companies.
- Total demergers: As for a merger, a total demerger of a company into several newly created entities triggers the dissolution of the initial company. Consequently, the newly created entities will not bear the liability for offenses committed prior to the total demerger by the initial company.
The principle of personal criminal liability allowing such solutions would not likely apply in the case of fraud, that is, when the merger only occurs in order to avoid the criminal conviction of the target company. In such event, the absorbing company shall be held liable for the offenses committed before the merger.
Also, the abovementioned principle of personal criminal liability only applies to offenses that are not sanctioned before the date of the merger. Assuming a final sentence has been pronounced before the date of merger, the sanction shall be transferred with the target’s liabilities.
Finally, the loss of legal existence of the target company does not prevent the implementation of a claim against a natural person, such as executives, that took part in the infringement.
II. Applicable sanctions
1. Type of sanctions applicable to the company
If the company is found liable for a criminal offense committed on its behalf by its bodies or representatives as set out in the first paragraph under I, the courts may apply a range of sanctions such as: (a) pecuniary fines; (b) restraining measures; (c) confiscation measures; or (d) compliance-related measures in the case of conviction for corruption or influence peddling offenses.
The severity of the sanctions depends on the type of offense committed, that is, whether the infringement is a felony, a misdemeanor or a minor offense (contravention).
- For instance, sanctions for felonies and misdemeanors incurred by legal persons are monetary fines, and/or in the cases set out by law, restraining measures, indemnificatory sanction, and/or for corruption related misdemeanors, a sanction requiring compliance system to be implemented under Article 131-39-2 of the French Criminal Code.
- Penalties incurred by legal entities for minor offense are fines and certain restraining measures, as well as indemnificatory sanctions, as the case may be.
- Monetary fines
Monetary fines range from a minimum of EUR 190 (ie, five times the fine incurred by individuals for the lowest criminal fines) to several millions of euros. With regard to offenses for which no fine is provided to individuals by law, a fine for legal persons is set at EUR 1 million, pursuant to Article 131-38 of the French Criminal Code.
The competent courts may pronounce the fine:
- up to the maximum amount set out by law; or
- for certain offenses, at twice the amount of the proceeds from the commission of the offense.
2. Restraining measures
The additional sanctions that may be pronounced by the competent courts for felonies or misdemeanors committed by legal persons, where expressly provided for in the French Criminal Code, are as follows:
- Dissolution of the legal person where the legal entity was created to commit an offense or was diverted from its corporate objects in order to commit a felony or other offense punishable by a prison sentence of three years or more (not applicable to public bodies and other specific bodies such as workers’ unions and political parties)
- Prohibition on exercising (up to five years or permanently), directly or indirectly, one or more corporate or professional activities
- Placement under judicial supervision for a maximum period of five years (not applicable to public bodies and other specific bodies such as workers’ unions and political parties)
- Closure (up to five years or permanently) of the establishment or facility that was used to commit the offense
- Debarment (up to five years) from public procurement
- Prohibition (up to five years or permanently) on making public offerings and listing securities on the stock exchange
- Prohibition (up to five years) on issuing checks or using payment cards
- Confiscation of any goods or real property used for or resulting from the commission of the offense
- Publication of the decision
- Confiscation of the animal involved in the offense
- Prohibition (up to five years or permanently) on owning an animal
- Prohibition (up to five years) on receiving any public aid (from any public body) or any financial assistance from any public or private body carrying out a public service mission
Certain other sanctions may also be decided for specific or minor offenses. For misdemeanors and minor offenses the company may also incur an indemnificatory sanction, that is, be required to repair the damage caused to the victim, either in addition to, or in lieu of, the fine (the so-called sanction-réparation).
3. Confiscation of any profit or revenue or goods used in the commission of the offense
The additional penalty of confiscation is incurred in cases provided by law and for offenses of certain gravity.
Confiscation covers all movable or immovable property, whatever the nature, used to commit the offense or was intended to commit it. It also covers all goods that are the direct or indirect proceeds of the commission of the offense, with the exception of property subject to restitution to the victim. For certain offenses, no limitation is set as to the origin or the use of goods that may be confiscated.
4. Compliance-related sanction
The Sapin II Law introduced a new compliance-related sanction under Article 131-39-2 of the French Criminal Code.
In the event of conviction for corruption or influence peddling offenses, the court may require the offender to implement a compliance program within a certain time limit (five years maximum) under the supervision of the French Anti-Corruption Agency (as mentioned under Section I).
In the event of breach, the new Article 434-43-1 of the Criminal Code provides for a sanction of two years’ imprisonment and a fine of up to EUR 50,000 for individuals, and for legal entities, the same sanctions as for the offense that gave rise to the compliance-related sanction.
2. Interim measures, cease and desist orders, bans and confiscatory measures
If a legal person is found liable for a criminal offense, the restrictive and confiscatory measures indicated in paragraph II b) and c) may be applied. Confiscatory measures may also be carried out already during the course of the investigation, under the conditions set out in the French Code of Criminal Procedure. Also, other interim measures may be decided during the investigatory phase by the investigating judge (see Section IV).
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
Generally speaking, there is no provision in French criminal or civil law that would require setting up corporate policies to prevent the commission of intentional criminal offenses by the company.
However, directors or managers may incur personal criminal and/or civil liability separate from any corporate liability under the following circumstances:
In respect of directors’ or managers’ criminal liability
As regards unintentional criminal offenses, Article 121-3, subparagraph 3 of the French Criminal Code states that when the law sets out such a consequence, an individual is liable for a misdemeanor in the case of imprudence, negligence or failure to meet an obligation of care of security as set out by law or regulation, if it is established that the person has not exercised normal care, taking into account the nature of his or her mission, functions and competence, as well as his or her powers and available means.
Article 121-3, subparagraph 4 of the French Criminal Code states that in the case referred to in subparagraph 3, an individual who has indirectly caused the harm but who has created or contributed to creating the situation that caused the harm or did not take the measures necessary to prevent it, may be held criminally liable only if: (i) he or she violated, clearly and deliberately, a particular obligation of care or security set out by law or regulation (deliberate fault or faute délibérée); or (ii) he or she committed a grossly negligent act that resulted in particularly serious risk to others, which he or she could not have ignored (grave fault or faute caractérisée).
In respect of directors’ or managers’ civil liability
Pursuant to Article 1850 of the French Civil Code, directors may incur civil liability if they breach company laws and regulations, the company’s bylaws or their duty of care in management, to the extent that damage is caused directly to the person bringing the action before the court. Where several managers have participated in the same acts, their liability is joint and several toward third parties and partners.
Actions for damages against directors may be brought: (i) on behalf of the company (by its legal representatives or by shareholders with a minimum shareholding); (ii) in exceptional circumstances, by a shareholder who suffers personal loss or damage distinct from the company’s loss; or (iii) by a third party that suffers loss/damage because of the negligence of the directors. Directors are only liable to third parties if they commit a fault severable from their duties (faute séparable de ses fonctions), defined by case law as an intentional and particularly serious fault, incompatible with the normal course of a director’s duties.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
Non-mandatory compliance “models”
Under French criminal law, the implementation of a compliance “model” or policies does not exempt or reduce criminal liability. However, in practice, the implementation of a compliance “model” may induce courts, when deciding on the applicable sanction, to take into account the company’s efforts to prevent criminal offenses from occurring.
Mandatory compliance program
The Sapin II Law imposes an obligation to actively manage corruption risks for companies with at least 500 employees (or companies belonging to a group of companies whose parent company is headquartered in France and whose workforce includes at least 500 employees) and with revenues in excess of EUR 100 million (consolidated revenues in case of a group). Presidents, managing directors, directors and managers of such companies are required to take appropriate measures to prevent and detect, in France and abroad, acts of corruption. Failure to comply with this obligation gives rise to fines of up to EUR 200,000 for individuals and EUR 1 million for legal persons.
Moreover, the Vigilance Law (as described under Section VI), created an obligation for certain companies to implement and publish a vigilance program (plan de vigilance) aimed at controlling the activities of their subsidiaries, subcontractors and suppliers. Violation of this obligation may lead to civil liability toward persons who have suffered damage as a consequence.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
Non-mandatory compliance “models”
As stated above, the implementation of a compliance “model” does not exempt a legal person from criminal liability when it is not mandatory.
Mandatory compliance program
However, when the adoption of a compliance program is mandatory, the company has to implement it effectively in order to avoid any liability or punishments.
More specifically, companies falling under the scope of the Sapin II Law are required to implement the following: (i) an ethics code; (ii) an internal whistleblowing procedure; (iii) a regular risk-mapping exercise; (iv) assessment procedures for customers, major suppliers and intermediaries; (v) accounting checks; (vi) training programs for employees exposed to high risks of corruption and influence peddling; (vii) disciplinary sanctions; and (viii) an internal check and assessment system regarding the implemented measures. The requirement to implement these measures entered into force on the first day of the sixth month following the enactment of the Sapin II Law, that is 1 June 2017.
Regarding the Vigilance Law (as described under Section VI) the vigilance plan shall include: (i) a risk mapping that identifies, analyzes and ranks risks; (ii) procedures to regularly assess, in accordance with the risk mapping, the situation of subsidiaries, subcontractors or suppliers with whom the company maintains an established commercial relationship; (iii) appropriate action to mitigate risks or prevent serious violations; (iv) an alert mechanism that collects reporting of existing or actual risks; and (v) a monitoring scheme to follow up on the measures implemented and assess their efficiency.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; model of operation of such person or body
The Sapin II Law recently replaced the French Central Service for the Prevention of Bribery (SCPC) with the French Anti-Corruption Agency (Agence française anticorruption — the “Agency”), which is placed under the authority of the French Minister of Justice and Minister of Budget and tasked with the mission of aiding the competent authorities to prevent and detect acts of corruption, influence peddling, extortion, misappropriation of public funds, and other related misconduct.
Similar to the DOJ in the United States, France’s new Agency will, inter alia: (i) assist relevant public and private entities in preventing and detecting acts of corruption by, notably, adopting recommendations regarding the compliance programs that are required to be implemented; (ii) report identified potential offenses to the French public prosecutor; (iii) monitor the implementation of the French “Blocking Statute” created by Law No. 68-678 of 26 July 1968, which prohibits a person or company in France from providing certain kinds of information to a non-French authority for the use in a judicial or administrative proceeding without going through an internationally approved procedure such as the Hague Convention, in the context of compliance programs imposed by foreign authorities on companies incorporated in France; (iv) review the quality and effectiveness of companies’ anti-corruption programs; (v) monitor corporate implementation of compliance programs imposed as a penalty; and (vi) issue an annual report describing its activities.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
Article 706-42 of the French Code of Criminal Procedure states that the magistrates of the place where the criminal offense took place and where the accused legal person has its registered office are competent to prosecute, investigate and judge criminal offenses committed by legal persons. Moreover, where an individual who acted on behalf of the legal person is also prosecuted, the court competent to judge the offense committed by the individual is also competent to decide over the liability of the legal person.
2. Possibility of the application of interim measures
During the investigation phase (instruction), the investigating judge may decide to place the legal person under judicial control (contrôle judiciaire). Such judicial control results in one or several of the following obligations, which the investigating judge can change or cease, as needed during the investigation:
- Deposit of a security, the amount and payment terms of which are set forth by the judge
- Creation of personal or real sureties, for an amount and period determined by the judge, in order to cover the victim’s claims
- Prohibition on issuing certain types of payment checks or on using credit cards (only where such measure may also be incurred as a sanction by the legal person – see Section II)
- Prohibition on carrying out certain activities where the offense was committed in the conduct of such activities and it is feared that a new offense may be committed
- Placement of the company under judicial supervision for a renewable six-month period, in respect of the activity in the course of which the offense was committed
The securities and sureties guarantee the payment for the defense of the accused, execution of any other obligations imposed upon the accused, as well as the payment of any damages, restitutions and fines.
As mentioned under Section I, offenses that constitute a criminal offense may also constitute a breach of administrative regulations, and in this regard lead to the pronunciation of interim measures by the AAIs (independent regulatory authorities).
3. Plea bargains and related effects on corporate liability
Under French law, there are three different kinds of plea bargain procedures that apply to legal persons to a certain extent. Furthermore, the Sapin II Law creates a settlement agreement procedure, known as judicial convention of public interest (convention judiciaire d’intérêt public).
- Criminal out-of-court settlement procedures
Under the procedure called composition pénale, the prosecutor may offer the accused person the option to pay a fine so that a criminal action will not be initiated, provided that the person pleads guilty. The fine may not be superior to the maximum fine for the relevant offense.
As regards the legal person, the composition penale is only available in offenses set out under IV the French Commercial Code, for which no imprisonment is provided for by law.
These same offenses can also be settled before the criminal prosecution has been initiated, pursuant to a so-called procedure for criminal settlement (transaction pénale). In such case, the French General Directorate for Competition Policy, Consumer Affairs and Fraud Control suggests a proportionate fine, which must be approved by the state prosecutor and agreed to by the accused person. The accused must also plead guilty.
2. Prior guilty plea
The prior guilty plea procedure or comparution sur reconnaissance préalable de culpabilité (CRPC) is another procedure that allows a prosecutor to offer an alternative sanction to the accused that will agree to plead guilty. However, contrary to the procedures cited under 3 a), the CRPC is not an out-of-court procedure. It is applicable to misdemeanors, with a fine or at most a five-year term of imprisonment. The amount of the fine should not exceed the maximum fine for the relevant offense. The Ministry of Justice Circular of 2 September 2004, specifies that the CRPC is also applicable to legal persons.
3. French deferred prosecution agreement (convention judiciaire d’intérêt public)
The Sapin II Law introduces under Article 41-1-2 of the French Code of Criminal Procedure a new form of French deferred prosecution agreement that allows legal entities suspected notably of international or national corruption offenses, influence peddling and money laundering to avoid prosecution and criminal sanctions by entering into an agreement with a court.
The public prosecutor may propose that companies settle, either: (a) during the course of criminal proceedings, in which case the company would have to plead guilty; or (b) before criminal proceedings are initiated, to avoid criminal conviction, provided they agree to take either or both of the following:
- Payment of a public fine (limited to 30% the company’s three-year trailing average annual revenue and determined based on the proceeds of the offense), increased by damages to the victim and certain expenses incurred by the new French Anti-Corruption Agency within its mission
- Implementation of an internal compliance program to be overseen by the agency for three years.
Any such fine and/or compliance program must be approved by a judge in a public hearing. The settlement order and agreement as well as the fine amount must be published on the agency’s website. In exchange, charges will be dropped and the company will not be required to make any admission of liability. Such deferred prosecution agreements are reserved for corporate entities, while individual offenders will remain subject to criminal sanctions even if the company enters into a deferred prosecution agreement.
4. Persistence of corporate liability if the crime is extinguished
Where an offense is statute-barred, the prosecution will no longer have a legal basis for the sanction and the charges will be dropped. However, under French legislation and case law, the point from which the statute of limitations runs in the case of undiscovered or concealed offenses will be delayed.
Moreover, the criminal liability of a legal person is independent from the liability of the individual at the origin of the offense, and the fact that the offense is extinguished vis-à-vis the individual or that the individual is not found liable does not impact the possible liability of the company.
Finally, should the offense at stake cease to give rise to a criminal offense after it was committed, the principle of retroactive application of more lenient sanctions allows the extinguishing of criminal liability for such a previous offense.
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
French criminal law does not recognize the legal existence of groups of companies as such. The principle of personality of criminal liability holds an important place among French criminal law principles and leads to the exclusion of the liability of a person for acts committed by another. Under this principle, a company and its subsidiary are two different legal persons. Therefore, unless the subsidiary can be seen to act as a representative of the parent company, the criminal activity of the subsidiary’s managers or representatives may not lead to criminal liability of the parent company. Also, should the parent company have acted as an accomplice or participated directly as an author in the commission of the offense, it would also be held liable for the offenses committed entirely or in part by its subsidiary.
2. Basis of liability and applicable sanctions
In principle, the parent company may only be held criminally liable under the conditions set out above in Section I, as a parent company cannot be liable for acts of its subsidiaries without being itself involved in the offense, due to the legal autonomy of the different companies of a group. However, such solution only applies under criminal law. By way of example, in insolvency proceedings an action can brought against a parent company when it is ascertained that it has intermingled its property with that of its subsidiary (théorie de l’acte de gestion par immixtion). Similar possibilities exist notably under certain environmental laws where the parent company has caused its subsidiary placed in judicial liquidation to have insufficient assets.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
The Criminal Section of the French Supreme Court recently confirmed (25 October 2016, case No 16-80366) its well established case law refusing to admit the transmission of criminal liability to the absorbing company pursuant to the principle that criminal liability is specific to the author of the offense (as mentioned above under Section I). The reiteration of this case law is significant as it seems to adopt a different position from that upheld by the Court of Justice of the European Union (5 March 2015, case C 343/13) in which it was requested to interpret the Third Council Directive 78/855/EEC of 9 October 1978, concerning mergers of public limited liability companies, as amended. Under the directive, a merger by absorption involves the transfer of all of the absorbed company’s assets and liabilities to the absorbing company. The CJEU considered, in this case, that a fine imposed after the company’s acquisition for offenses committed prior to its merger by acquisition is included in the transferred liabilities. In case No 16-80.366, while the trial judges expressly referred to the CJEU’s solution in order to allow the transmission of the target company’s criminal liabilities, the criminal section of the French supreme Court reversed this lower court decision on the basis of Article 121-1 of the French Criminal Code and consequently considered, once again, that the absorbing company shall not be held liable for offenses committed by the target company.
2. Proposed or contemplated new legislation
The law of 27 March 2017 creates an obligation for certain companies to implement and publish a vigilance program aiming to control the activities of their subsidiaries, subcontractors and suppliers (the “Vigilance Law”). This duty of vigilance is applicable to French companies that at the end of two consecutive financial years, employs, together with their direct and indirect subsidiaries, more than 5,000 persons in France, and to French companies employing, together with their direct and indirect subsidiaries, more than 10,000 persons in the world.
The vigilance program includes in particular reasonable vigilance measures to identify and prevent the occurrence of violations of human rights and fundamental freedoms, severe physical or environmental damage, or health risks resulting from the company’s activities and from the activities of the companies it controls directly or indirectly, as well as the activities of the subcontractors or suppliers with which it has established business relationships.
Pursuant to the draft bill of the law, failure to comply with the obligations set out above was intended to give rise to a civil fine of up to an amount of EUR 10 million. This measure was removed after having been declared unconstitutional by the French Constitutional Council on 23 March 2017. However, The parent company could be required to compensate damages under the general French law principles of tortuous liability referred to in Articles 1240 and 1241 of the French Civil Code. The fault could possibly stem from the lack or inadequacy of the vigilance program, as well as from the failure to implement it.