Having focused on the enforcement of sanctions by the United States, United Kingdom, the European Union, and Germany in the past weeks, we continue our series with the current enforcement practice of the French authorities and the changes to be expected following the newly announced G7 Enforcement Coordination Mechanism.
What are the recent sanctions enforcement trends in France?
Contrary to what can be observed in the Netherlands or Germany, the French competent authorities do not communicate on the number of investigations conducted or sanctions imposed. Unless one is involved in such an operation or the press has access to confidential documents and releases a news story, it is not possible to determine with precision the amount of sanctions enforcement in France. A recent example that made it into the press is the investigation led by the Ministry of Economy against real estate agencies that were allegedly neglecting to apply the sanctions to Russian oligarchs living in the French Riviera.
However, from our experience, it is clear that controls have become stricter, that fines have increased and, more generally, more attention is being paid to sanctions violations. For example, we note that the French customs have increased their focus on any aspects of the customs declaration that potentially link to sanctions violations (i.e., a product’s classification, origin, identity of the consignee/consignor, country of dispatch/destination).
Historically, the French authorities have taken a noticeably pro-business stance on how to interpret the earlier Russia sanctions imposed under EU Regulation 833/2014, but this has been accompanied in the last months by more prosecutions on identified violations and heavier fines.
What are the maximum penalties for violations?
In France, contravening or attempting to contravene the sanctions is a criminal matter that is punishable by imprisonment for five years, confiscation of the substance of the offence, confiscation of the means of transport used to commit the offence, confiscation of the goods and assets which are the direct or indirect proceeds of the offence, and fines of not less than the amount, and not more than twice the sum, in respect of which the offence was committed or attempted.
If dual use products are involved, the violation may also fall within the scope of Article 414 of the French Customs Code, which provides that the exporting company or the individual involved may face a fine up to three times the value of the object of the crime, imprisonment up to 5 years, seizure of the object of the crime, seizure of the means of transportation, and seizure of all property and assets which are the direct or indirect product of the crime. If military products are involved, a fine of up to 375.000 € (for legal entities) and imprisonment up to 5 years is also at stake.
In some cases, especially where a company was simply negligent and/or did not act in bad faith, iinfringements can result in a “Customs transaction” which is a standard method of amicable settlement of a customs dispute. In this instance, customs authorities can settle the case and notify the company that it must pay a penalty. This avoids prosecution through the classic criminal circuit and has the effect of extinguishing the action for the application of the prison sentences provided for by the customs code.
Is there a mechanism by which companies can submit a voluntary self-disclosure of possible violations to mitigate penalties?
There is no voluntary disclosure mechanism in France that could lead to an automatic or quasi-automatic acquittal or reduced sentence. There is no obligation to disclose an offense to the authorities. However, in practice, voluntary disclosure can have the effect of limiting the sanctions imposed when the company shows good faith and the implementation of safeguards to ensure that the breach does not recur.
In principle, any civil servant who, in the performance of his duties, acquires knowledge of a crime or misdemeanor is obliged to notify the public prosecutor without delay and to transmit to this magistrate all information, reports and acts relating thereto. In essence, a company who goes before the competent authorities to self-report on non-compliance with sanctions or export controls, which constitutes a misdemeanor, risks being the subject of a report to the public prosecutor.
However, based on the French customs code, French authorities are allowed to reach a settlement with the offender. In practice, where export non-compliance is at stake, the competent authorities do not systematically refer to the public prosecutor (depending on multiple factors such as severity of the non-compliance, amounts of products exported without license, recurrence, size of the company and the fact that it could not have been unaware that the goods were being controlled, etc.).
What do you think the G7 Enforcement Coordination Mechanism means for France?
The G7 Enforcement Coordination Mechanism addresses concerns raised by policy makers in France that companies could circumvent the sanctions adopted by the European Union (EU) against Russia and Belarus. The French Minister of Europe and Foreign Affairs, Mrs. Catherine Colonna, indicated during a hearing on 7 March 2023 in front of the committee of Foreign Affairs of the French National Assembly that the circumvention of sanctions is a priority for the EU and France.
To date, the French government has not expressed its position yet on whether to give a mandate to the EU Prosecutor to prosecute sanctions violations and coordinate sanctions enforcement, as suggested by the head of the European Public Prosecutor’s Office (EPPO), Mrs. Laura Codruţa Kövesi. However, we believe that France expects the EU lead the effort on the implementation of the G7 Enforcement Coordination Mechanism, with the cooperation of French authorities and its intelligence agencies.
What is one thing that you would recommend companies do now to get ready for increased enforcement in France and increased coordination with the other G7 members?
The most fundamental action for companies to take is to integrate international sanctions and export controls into the daily operations of the company. French authorities pay specific attention to whether companies have implemented an internal compliance program and trained their staff. In some cases, compliance officers and legal departments may be well aware of such rules, while operational staff (e.g. engineers, sales staff) have not been sufficiently alerted to the risks associated with sanctions and export controls. An internal compliance program should also include risk-based screening of transactions, especially those involving certain countries which are known to introduce heightened risks for the potential circumvention of sanctions (such as Kazakhstan, Uzbekistan, Turkey, India, China, and to a certain extent, Balkan or Baltic countries).