Updated: May 3, 2019 (Initial publication: Feb. 7, 2019)

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Compliance & Personnality

by Marie-Anne Frison-Roche

Pour lire le document de travail en français, cliquer sur le drapeau français

This working paper has served as a basis for an article subsequently published in French in the Law Journal Recueil Dalloz (see Compliance et personnalité, Recueil Dalloz, 2019).

It is enriched with notes, references and links. 

 

Summary: Compliance Law is often presented as empty and a mechanical set of procedures, in which human beings do not matter. It is the opposite.

The concern of human beings justifies it fights against the legal technique of the personality. Indeed as Compliance Law is an legal construction around Information and even in its core function of prevention of the systemic risks and its markets protection, the Compliance Law sets the requirement to know "genuinely" the person who is "relevant" - behind the legal person - for the purpose set, for example the fight against corruption or money laundering, establishing in principe what are only exception in Corporate Law or Competition Law.

In a more European conception of Compliance Law, as Law of direct protection of human beings beyong legal personnalities, from near the company and even far, humans being the real and effective beneficiaries of the new branch of Law. 

 

I. COMPLIANCE LAW,  LAW OF INFORMATION,  LEGAL REQUIREMENT OF "TRUE KNOWLEDGE" OF THE "TRUE" PERSON FOR THE "RELEVANT" PURPOSE  

Compliance Law has internalized in "crucial companies"!footnote-1467 not only the obligation to comply with the Law, which is the obligation for everyone, not only to be able to demonstrate at every moment in Ex Ante this "conformity" - which is not an ordinary charge, but specific obligations for them to contribute to goals of general interest which do not concern them directly, which makes it a branch of the specific Law. For this, the Compliance Law will enter a frontal shock with the very principle of Company Law: the legal personality (A), forcing companies to reveal the "real" customer and to know him very well  (B) transforming what was sanctioned exceptionally, in the case, for example, of the fictional society, in principle of transparency,  apprehending  reality directly, by going beyond the mirror of the personality (C).

 

A. THE APPARENT FRONTAL SHOCK BETWEEN COMPLIANCE LAW AND THE CORE PRINCIPLE OF CORPORATE LAW

Resembling Regulatory Law, of which it is only an extension, Compliance Law imposes a concrete apprehension of the worldfootnote-1462. In this archaic way, Compliance Law wants to discard the legal constructions, the borders, and almost all that makes the Law, that is to say its artificiality, to seize directly of the realities. But if the law is so beautiful!footnote-1463, so subtile, looks so much like the architecture!footnote-1464, it is also because it is built by its own reality and takes a distance with the coarse reality of the world, with which it takes away.

Now, in the classical legal system and without even going into the monumental and diverse doctrine on this subject, the "personality" is a technique, the moral personality being what unites all corporations!footnote-1475.. In any way, as it conceived of a mere ability to hold rights and obligations, prerogatives and responsibilities, or as an institution, or as what is born of a contract, it is always a technique in which the law is more or less constrained, depending on whether one goes towards "reality" or "fiction", in which the power of decision is given rather to those who have given the kickoff or to those who develop the instrument, depending on whether one goes to the contractarian thesis or the institutionalist thesis. But the concrete reality is always covered by the Law.

Those in childish language one could call the "real people" who decide, who exercise power in the cascade of legal persons in groups, groups which have no legal personality and therefore are not accountable very much In Ex Ante, these naked Kings who pass at the head of procession, the Law does not see them. And at the Law table, the child does not have the right to speak.

Thus, in a Company Law in which the personality is founder, because legally the "person" is a "mask" (persona, in its Roman origin), the legal personality is also what allows to act without being seen. This is both what allows freedom, but also not only the limitation of liability!footnote-1465 - and an incentive to action and investment -  with a veil of opacity covering all players.

This use, Compliance Law, in that it is a body of institutions, principles, definitions, procedures and decisions whose purpose is to achieve world interests, goals that give meaning and unity to all these corpora in a common teleological conception of the Regulatory Law!footnote-1466, for example the fight against corruption, money laundering, drug and human trafficking, climate change , equality between human beings, can not admit it.

It is necessary that the abstraction of the legal personality recedes, in order to let Compliance Law reach its goals, for example the fight against the corruption or the money laundering. And for this, the veil of the moral personality, which begins with the corporate name, will be raised because not only the Compliance will require some companies that are in charge of achieving these Compliance goals, mainly the major banking and digital companies: they must not only know the "real customers", but they must know them very well.

These are requirements both based on the role of centralization of information that play these companies that support regulators and prosecuting authorities. These are also extraordinary requirements because this transparency - a frontal contradiction to the opacity of the "mask" by which freedom is also defined and who is the person -, is at the heart of the Compliance.

 

B. COMPLIANCE AND THE LEGAL OBLIGATION TO "KNOW" THE "REAL PEOPLE" 

Compliance Law aims at two articulated but distinct obligations: to no longer take into account legal personality to know the "beneficial owner"!footnote-1471(1) on the one hand and to "know it well" (2).

 

1. To know the "real client"

Compliance Law aims to oblige the subjects in charge to make effective the fight against global evils to discover behind the most diverse legal personalities the " effective beneficial owners". It is all the more important to know them in Ex Ante because more than a quarter of global transactions involving corruption have as legal actors companies whose legal personality disappears as quickly as it appeared!footnote-1469.

To fight against corruption, the G7 set up in 1989 the Financial Action Task Force (FATF), to which corresponds the French organization TracFin , which recalls that when a company acts for a "customer", it must know the "beneficial owner" of the transaction, ie "the natural person (s) who actually owns or controls a client and / or a natural person on whose behalf a transaction is made." This definition is repeated , in soft Law and hard Law, for example in the French Monetary and Financial Code by transposition of the 4th Europeean directive to combat money laundering in the Monetary and Financial Code which devotes a subsection on "identification of the beneficial owner" under "duty of viligance".

Although all international public organizations, such as the World Bank, the OECD or the FATF, try to thwart this ease of creating as many legal persons as one wants, it is still quite easy to act masked, because of the the absence of a Global Law  which, in the absence of a Global State, will probably never come, as long as it is a legal transaction that can take as many steps, through multiple legal persons, as the "real" operators want, playing on the diversity of legal systems.

This is why these prescriptions are very difficult to take effect, not so much because of the lack of diligence of the publlic and authorities in charge of this mission, but because of the Corporate Law which, for the moment, is not global. No doubt that gives it all the flexibility required but put also intrinsic opacity segmets, of which only the brutal mechanism of the whistleblowers!footnote-1470  coming from Ex Post violently break the opacity of the legal corporate "masks".

 

1. To "really know" the client

This formula is so famous and common that it is most often referred to by its initials: KYC ("know your client"). It is an important part of the Compliance Law, often presented as the "basic principle" of the duty of vigilance that weighs on banks. This means that the person who takes a new client for the company must "know" him, not only in his "true identity", but in what he is "really", what are his activity, his links, his fortune, his projects.

It could have been presented as radically new, Compliance Law thus charging a private operator to enter the lives of people. But at the same time isn't the golden rule of trade to " known his client "? In the same way as to make prevail the interest of his customer by prohibiting the conflicts of interest ? This another major concern of Compliance Law is a classical mark of the trade of quality and it's possible to assume that Compliance Law of the Compliance does content to formulate in legal way the natural movements of what could be called the "good trade"? As the French Alain Couret writes, "Exercising an economic activity means serving a clientele!footnote-1473".

Indeed, the merchant - which the banker also is - is not in contact with a neutral and static legal person, but with a client whose projects he must finance and understand the environment, in order to better serve him. If this is what one might call the "good cause" of commerce and the economy, the knowledge of the actual customer in his concrete project serves this purpose; if it is for a "bad cause", such as money laundering or the financing of terrorism, il is better for the merchant that the opacity of his client's personality does not hide it from the trader who exposes himself then to penal sanctions by negligence ; it's better he has the means to suspect that cause and he could to denounces it.

In this perspective, Compliance Law is not so much a kind of aggression of the classic Law, in particular Corporate Law, but a reconcretization of Business Law, reconnecting it with the relation between a merchant and a customer. In this, it is rather the Market, space without information on concrete projects and their causes, which is thwarted by Compliance Law, much more than the performance of the entreprise through Company Law. 

Moreover, one finds in Corporate Law in the form of exceptions so many lineaments of what are today the principles of Compliance Law of the Compliance.

 

C. THE TRANSFORMATION OF THE EXCEPTIONS AND LIMITS OF CLASSIC LAW INTO PRINCIPLES OF COMPLIANCE LAW

Indeed, Business Law has always refused to be fooled by this power of people to create legal personnalities. That's why people, even if one adheres to the institutional theory ot what is a "person", even if one asserts that it is about a "fiction", and that one uses terms more imaged today by example of "vehicle", it is still necessary that there is an underlying reality (1). It is during the takeovers that the disclosure takes place, not only through Financial Law but even especially through the Competition Law (2), with a growing refusal of Law to be used as constructing without any link with concrete reality. Theses exceptions are transformed in principle by Compliance Law, always bringing back to that: the reality of things, human beings and their purposes.

 

1. The classic sanction of "shell companies" or "fictitious compagnies" and other legal persons used as pure instrument without underlying

The classic Corporate Law has nevet allowed the use of the power to create legal personnalities without object and having for cause only to create a screen of smoke. A corporate person may be a "fiction", but it can not be a "fictional society". If the technique of abuse has been relatively little used because the creation of a person is a mysterious power, the society even having a sort of corpus mysticum through its "organs", the abuse leads only the liability but the qualification of "fictitious company" entails the nullity of the founding contract.

In this, the mask of the personality falls and the public authorities can find the "real" entities and humans who have acted. Thus, clearly distinct from the dormant society, the fictional society is not the one that does nothing, even Iess that one which is only a piece in a montage but the one whose only utility is its "mask" of the personality, which needs to be broken to see and seize the true actors

 

2. The "unveiling" power in takeover mechanisms and the reality of "determining influences"

When the person expresses his or her freedom through the exercise protected by the Law of his or her free will, this expression takes the form of the consent. This consent is embodied by th Economic Law,  especially Financial Law which makes the stock market as a market of consents incorporated in the securities in that it suffices to acquire (throught the property of the securities) enough to appropriate the control of the personality and express what will be imputed to it as being its free will. The law of the financial markets controls the seizures of power because taking the power of a legal person, another legal person can thus express the "free will" of the first. By cascades. 

The multitude of mandates, alliances, and positions, engender not only groups but hydres that the financial markets control not directly, because the Law of the financial markets do not treat the "dominances" but controls it only through the passage from one domination to another. In this, takeovers are at the heart of Financial Law and rules about the information obligations, the prohibition of conflicts of interest, etc., as much of the Compliance obligations, counteract what is not a only purchase of financial securities but also and first of all a purchase of consents that these contain.

In this, Competition Law is ahead of Financial Law since not only is the merger control more mature, precise and more concrete than the procedural purchase of control by takeover of securities, but also because Competition Law says that if the market power is in no way reproachable to a firm in itself, it implies particular "responsibilities" attached to this dominance, a link that Financial Law does not make but that  Compliance Law will develop on the dominant and "crucial operators", as they are alone in position to help the Public Authorities to realize certain goals of global general interest.

Financial law and Company law are increasingly the link between corporate techniques and the primary concern of the Law : whose personality must be above all the expression: the human being. In this, they fully join Compliance Law.

 

 

 

II. COMPLIANCE LAW, LAW OF PROTECTION, REQUIREMENT OF SERVING THE INTERESTS OF THE HUMAN BEINGS THAT DESERVE IT 

For the moment, Compliance Law is rather perceived as a set of binding, contradictory, foreign-based mechanisms that have the effect or even the aim of harming Europe. But if we try to understand it, that is to say, to deign to think that the Law has a meaning, Compliance Law is quite simple to understand: it is a set of rules, procedures and decisions to concretize a concern: the concern for human beings who are not always served by market mechanisms or public authorities. In this perspective, Compliance Law has a political dimension, placing the human being at the center of the company, of the markets and of the international economic exchanges, which is a political act. It is also a  Law globally binding because the space of development of the markets, the investments and the international trade doesn't make always a national place to the consideration of the human being, especially about fighting against corruption. 

It is therefore in relation to the circles of "concerned" people, from near and far, that we must build Compliance Law (A). The notion of border is therefore second. The priority is the relevance of these political choices, inseparable from cultural and legal traditions, which should lead to a "Europe of Compliance", Europe having always posed as the first "concern" the human being (B).

 

A. COMPLIANCE LAW AND CONCERN OF PERSONS, FROM NEAR OR FAR

To stay with the French Law example, one can take the so-called "Sapin 2  Act" and "Vigilance Act" (1) laws, both of which operate a reversal of the Ex Post and the Ex Ante (2).

 

1. The French law known as "Vigilance Act - Loi Vigilance", extension of the French so-called "Sapin 2 Act" 

To stay in French law, taken as example, technical work abounds on the laws of December 9, 2016 so-called "Sapin 2" and April 27, 2017 so-called "Vigilance". The first is itself the translation of the American Foreign Corrupt Trade Act and requires companies of a certain size to organize themselves to prevent Internal and international corruption, otherwise they are sanctioned. The concern is rather the protection of economic systems because corruption is what destroys them.  Ultimately these new legal requirements aim  population of the foreign victim countries to be free, especially young people.

The "Vigilance" legal rulges are a  technical extension in that the law of 2017 uses the same risk mapping mechanisms, etc., but it expresses a concern more directly humanistic, since it obliges a company "payer" to ensure that the rules of safety and human rights are respected not only in the companies in which it exercises a decisive influence, but morever in the chain of contractors.

It is no longer a concern for people who are in the corporation (shareholders), in the firm (employee) or external but close to it ("stakeholders, as are suppliers, creditors, investors, customers). It's about worrying about human beings: the one who works unprotected for a sub-sub provider - it's about worrying about the one who is nobody.

It is here not only the mask of the moral person which falls but the principle of contractual autonomy that is pulverized. This is usual in terms of liability because Tort Law analyzes situations in Ex Post, including contractually constructed situations, as factual situations. But because it is a Compliance Law rule, this obligation falls under the Ex Ante.

 

2. The general mark of the reversal of the Ex Post and the Ex Ante

In these new laws, Compliance Law prints its mark: by transfering the Ex Post into the Ex Ante. Thus, the repression, of essence Ex Post, is transferred to the company that self-monitors, self-evaluates and self-sanctions or / and denounces itself.

This may correspond to a company policy, if the goals pursued by the internalized Regulations are also pursued by the company through the spontaneous adoption of a Code of Conduct, and all the more so as it adopts a Corporate Soial Responsability or use as a shareholder a will  through his powers of "responsible choices"!footnote-1480.

Many have seen an attack on classical Corporate Law, for example classical French Company Law. But is it not the basis of the Company Law that the holder of the share capital holds two types of prerogatives, the pecuniary and the other policies? If one is not accustomed to passive associates or funds whose only interest was only in financial return, the resurgence of a traditional definition of partner having a more political conception of their role, expressing it at meetings, voting accordingly, etc., is the very mark that Corporate Law still exists.In a classic way. 

 

B. COMPLIANCE LAW, LEGAL CONCRETIZATION IN EUROPE OF THE CONCERN OF HUMAN BEINGS

This concern for the human being that Compliance Law carries, making every effort for example to fight the financing of the terrorism or fighting against the climatic change, concerns more particularly two types of people : the "mediates"  people (1 ) and the people for whom all this is done and that in the same way that we speak of "final consumer" we can qualify as "final beneficiary" (2).

 

1. The "mediates persons" to realize the "monumental goals" aimed by Compliance Law

It is because the States are too weak, lacking information, lacking financial means, being cramped in the territory which is consubstantial to them, that the realization of the goals they have set ( for example, fighting corruption or protecting human rights or protecting the environment) has been internalized in global enterprises.

Theses firms are "subjects of Compliance Law" because they have the means to concretize the goals, goals in wich lies the normativity of this new branch of Law. 

In this, even if it gives them obligations but also a lot of power (know everything about his client for example, control the complete supply chain, set up product traceability systems), they are the "mediates subjects of law". They are not the beneficiaries but they are the necessary "actors"!footnote-1481

 

2. "Final beneficiaries", persons for whom Compliance Law has been constructed

But the beneficiaries of the whole Compliance Law is not the company. It's not the markets anymore. In the original American conception of Compliance Law, this one was instituted to preserve the solidity of the markets and to protect them from the systemic risks!footnote-1482, which explains the intimacy between Compliance Law  and Financial Law. This is why Information and the power of regulators are the essential.

In a specifically European conception, which remains to be built!footnote-1483, the beneficiary of such a branch of law is not so much the systems and their solidity, the legal persons and their preservation, but the human beings and their protection. Protection of employees, equality between men and women, education for all, access to culture, preservation of common heritage.

This should not be so difficult because in order to engender it is necessary but it is enough that Europe draws on its tradition: above all humanist!footnote-1484

 
1

Sur la notion d' "entreprises cruciales", dont les banques, les gestionnaires de place et d'infrastructure essentielle sont les épigones, v. Frison-Roche, M.-A., Proposition pour une notion : l'opérateur cruciale, 2006. 

2

Sur ce lien essentiel, le Droit de la Compliance internalisant dans certaines entreprises les ambitions portées sur certains systèmes de Régulation, v. Frison-Roche, M.-A., Du Droit de la Régulation au Droit de la Compliance, 2017. 

3

Jestaz, Ph., Le Droit et le Beau, in Archives de philosophie du Droit, Droit et Esthétique, 1996. 

4

On the relations between Law and Architecture, s. Pierre Caye, Architecture et République2018.

5

S. for ex. Germain.M. & Magnier, V., Les sociétés commerciales, 2017, : "Malgré la diversité des formes juridiques, il existe un caractère commun à toutes les sociétés : elles ont la personnalité morale" (p.144).

6

For an critique of this conception, s. Supiot.A, Prendre la responsabilité au sérieux, 2015. 

7

On the definition of Compliance and Compliance Law, s. Frison-Roche, M.-A., Compliance Law, 2016.

S. also Bilingual Dictionary of Regulation and Compliance Law

8

Couret, A., Le bénéficiaire effectif, 2018

9

’OCDE, An Analysis of the Crime of Bribery of Foreign Public Officials, 2014. 

10

Frison-Roche, M.-A., le nouveau personnage du Lanceur d'alerte, 2019. 

11

Couret, A. et Rapp, L., Les 100 mots du Droit des affaires, coll. "Que Sais-Je ?", PUF, 2000, p.17.  

12

About this movement, s. Investissement responsable : l'essor, et spécialement Boujnah, S. Place boursière : promouvoir un modèle européen, 2019. 

14

Frison-Roche, M.-A., Compliance : before, now, after, 2017. 

15

Frison-Roche, M.-A, (dir.), Pour une Europe de la Compliance, 2019.  

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