Updated: Dec. 24, 2020 (Initial publication: July 15, 2020)

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🚧 Resolve the contradiction between "sanction" and "Incentive" under the fire of Compliance Law

by Marie-Anne Frison-Roche

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This Working Paper has been the basis for the first conference of the two conferences in the colloquium in Toulouse (France) under the scientific direction of Lucien Rapp, about Les incitations, outils de la Compliance ("Incitations, as Compliance Tools"), on December 12, 2019, the first one about The sanction as incitation and the second one about Incitations and Compliance Law (synthesis of this colloquium). 

Then, it has been the basis for the article, to be published in the books Les outils de la Compliance and Compliance Tools in the Series RĂ©gulations & Compliance.

Read a general presentation of this book.  

 

Summary and Introduction of this Working Paper: At first glance, Compliance and Incentives appear to be totally opposite. For two major reasons. In the first place, because the sanctions have a central place in the Law of Compliance and the incentives suppose an absence of constraint on the operators. Secondly, because the incentives are linked to self-regulation and that Compliance Law assumes a strong presence of public authorities. Taking the first reason, one should choose: either Compliance or Incentives! Either the effectiveness of one or the effectiveness of the others; either the techniques of one or the techniques of others; either the philosophy of one or the philosophy of the others. Resign oneself to the loss that such a necessary choice would involve. But to put the terms thus amounts to think poorly about the situations and reduce the fields of the solutions which they call for. If we take a rich definition of Compliance Law, it is possible on the contrary to articulate Compliance and Incentives. From this perspective, sanctions can no longer become what blocks the use of incentives but, on the contrary, what constitutes them. Even more, the coupling between Incentives and the requirements of Compliance Law must be strongly encouraged, as soon as the public authorities supervise in Ex Ante all the initiatives taken by the "crucial operators". 

This working document deals with the first issue!footnote-2045. Indeed, the so-called incentive theory targets mechanisms that do not directly use coercion. They would therefore have little place in Compliance Law. But Compliance seems saturated with sanction procedures. We can even say that it seems to put them at the center, the public authorities presenting the number of sanctions as a sign of success, while the companies seem obsessed with their prospects, the two concerns ending in such a strange convergence that are the D.P.O...

An honest observer can only feel immediately uneasy. Indeed, he can only raise the definition of the sanction as a "constraint" triggered Ex Post, at the very heart of Compliance Law which is presented as a set of Ex Ante mechanisms. Based on this contradiction in terms, should we give up the association and think that it would be wrong against the spirit to think of the sanction as an incentive?

It is undoubtedly in this connection that one perceives most clearly the clash of two cultures, which do not communicate, while technically they apply to the same situations. Indeed, because Compliance was firstly designed by Finance, everything is a tool for it. Therefore, the tendancy to think about the sanction only as an incentive is very strong in Compliance Law. It manifests itself continuously and will not stop (I). But whatever the reasons are to conceive it this way, the principles of the Rule of Law cannot disappear and if we do not want them to be erased, then they must be articulated (II). It’s an essential adjustment.

This is why we can literally say that Compliance has set Criminal Law on fire by its conception, logical but closed in on itself, of sanctions as simple incentives. For Law to remain, however, it is necessary to hold a very firm definition of Compliance Law centered on its Monumental Goal, which is the protection of the person.

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La seconde problématique est analysée in "Compliance et Incitation : un couple à propulser", 2020.

Sanctions have a central place in the Compliance mechanisms, they are almost their stars. But we only talk about them as "tools" used on enterprises to obtain what is expected of them, that is to say as incentives (I). Going maybe then from one excess to another because this total instrumentalization of sanctions comes up against the principle of the autonomy of Criminal Law, anchored in the most fundamental principles of the Rule of Law, which must be preserved (II).

 

I. THE TENDANCY TO THINK  A SANCTION ONLY AS AN "INCENTIVE" IN COMPLIANCE LAW

Perhaps because Law is no longer perceived as an autonomous system but as a bulk of tools, even the sanctions would only be tools, lending themselves like all the others to incentives (A). But because Criminal Law does not allow itself to be distorted so easily, Criminal Law dies hard, the shock is very violent and very visible (B).

 

A. CRIMINAL LAW, A "WONDERFUL" TOOL TO ENCOURAGE ENTERPRISES TO "COMPLY"....

Compliance cannot be reduced to a method to obtain an Effective Law: otherwise, by way of the effectiveness of the rules, Compliance should be applied to all rules because any legal rule deserves to be effective, or, if reserving this particular attention to the "most important" legal dispositions, it is undoubtedly for disapproved facts other than certain offenses that should be reserved this shock treatment. Certain crimes would undoubtedly deserve to be embarked by the violence of what would be Compliance, a sort of new way of enforcement in Ex Ante. If Compliance Law presents such a marked Ex Ante aspect, it is because it extends the Regulatory Law, internalized in "crucial operators", thus unbinding this Regulatory Law, initially stemming from the banking and financial sector , of the prior determination of a sector, yet retaining its teleological nature, placing the legal standard in the aim pursued.

Therefore if the norm is in the goals, everything becomes an instrument in order for behaviors to lead to the achievement of goals and that no organization stands in the way. The personality, legal artefact, was thus made transparent by Economic Law, before being pulverized by the concern of the "beneficial owner"!footnote-2032. The normative power of these goals can be negative as well as positive, a negative goal being able to be more imperative than a positive goal. Criminal Law is familiar of it ; by classical wisdom it just prohibits, what is a set of negative prescriptions, in order to better serve Freedoms: the individual does what he wants, as long as he does not come up against the freedom of the others and that he does not run up against negative prescriptions: do not kill, do not steal, do not lie, etc.).

Because Compliance Law is like Regulatory Law, which extends it from a systemic and Ex Ante nature, these normative goals are global. They can be Monumental Negative Goals, namely the affirmation that an event does not happen, obtain that no one has the behavior that would lead to it (for example that no one uses privileged information, that no one pollutes, because this would result in a systemic disaster); these may be Monumental Positive Goals, i.e. for one event to occur, to get some people or everybody to have the expected behavior, as this will result in the desired situation (e.g. dissemination of information to all, planting trees, children's education).

From this perspective, the sanction becomes a tool like any other. As strange as it may seem to the lawyer for whom Criminal Law is irreducible to all other branches of Law, which the technical principle of "the autonomy of Criminal Law" translates, it seems on the contrary to be taken for granted for those who have no legal culture, ie those who design the Regulatory and Compliance systems. For a rule to be integrated and a goal to be achieved, people must attach importance to it, know its existence, integrate it into their behavior. If the rule is associated with a heavy penalty for non-compliance and this is clearly instilled, then it will be observed.  The goal will then be achieved: the sanction thus becomes a very effective and widely used "Compliance Tool", presented so often like this, bringing with it its characters, such as the lawyer, in the company's Ex Ante.

In a way, the sanction is a "wonderful" tool because the fear of the "policeman" (and all the non-legal newspapers designate the regulatory and supervisory authorities as the "market policeman") and the perspective of the "punishment" (and all the newspapers designate as "penalties" which are administrative sanctions) for the sanction of "infringements (and all newspapers designate as" infringements "which are administrative failures) are the best incentive to behave well . Sociology studies are multiplying about Surveiller et Punir ("Discipline and Punish") that now constitute the mechanisms of Regulation and Compliance!footnote-2033

But this produces a shock at the very heart of Criminal Law which, in a classical conception, did not mix with other branches of Law, was not a tool to encourage respect for other branches of Law. However, this autonomy of Criminal Law has no reason to disappear under the pretense that the sanction is also a useful instrument.

 

B. THE SHOCK BETWEEN THE COMPLIANCE LOGIC AND THE FUNDAMENTAL PRINCIPLES CONSTITUTING CLASSICAL CRIMINAL LAW 

This does not pose any practical difficulty as long as the legal regimes of classical Criminal Law and those of Sanctions Law converge or at the very least do not collide. But because Sanctions Law developped by Markets Law (Competition Law, Financial Markets Law, etc.) aims to obtain results, for that being only a tool, it has developped many technical specificities.

They can be identified as follows:

 

  • sanctions that are no longer the exception but the ordinary, maybe the core, in market Regulatory Law and Supervisory Law, contrary to liberal economic principles ; 

 

  • sanctions all the more high as they are negotiable in exchange for what the public authorities want: thus penalization in no way excludes contracting ; on the contrary it is a sub-tool in the hands of the administrative authority or prosecution policy ; 

 

  • sanctions which are designed independently of procedural principles, the "Criminal Law / Criminal Procedure" couple losing their intimacy ; 

 

  • sanctions that are exchanged for evidence (leniency programs, which are compliance tools); 

 

  • sanctions that are not stopped by time: immediate application and retroactivity of sanctions; 

 

  • sanctions that are not stopped by space: extraterritoriality of sanctions;

 

  • legal prescriptions in consideration of which  the entities able to answer must justify their behavior, being not presumed to conform in these prescriptions; 

 

  • sanctions which are cumulative for the same fact if this is effective;

 

  • abandoning the classical notions of intentionality and causality, since reasoning is functional and not causal.

 

This shock must be resolved by the articulation between the sanction used as an incentive tool and the principles of the Rule of Law. This is done with difficulty, this is primarily the task of the courts.

 

II. THE LINKAGE BETWEEN THE SANCTION AS AN INCENTIVE AND THE RULE OF LAW PRINCIPLES 

This articulation is difficult. It is appropriate to lay down its terms (A) and then show that at the same time the Rule of  Law principles continue to prevail over what would be excluded, i.e. a pure instrumentality of repression (B). The Compliance movement nevertheless justifies that Criminal Law, remaining autonomous, is interpreted more and more from the Monumental Goals for the achievement of which it was established (C).

 

A. THE GENERAL TERMS OF THE ARTICULATION BETWEEN THE SANCTION AS AN INCENTIVE FOR ENTERPRISES TO RESPECT COMPLIANCE STANDARDS AND THE RULE OF LAW

This would not pose a problem on two conditions. Wether the situations covered by the Law of sanctions as incentives for appropriate future behavior were not the same as those covered by the Law of sanctions for blameworthy past behavior, that is to say if Repressive Administrative Law on the one hand and Criminal Law on the other hand did not cover the same situations. In this case, each logic could develop each one with regard to itself. Wether if, in the hypothesis where the two bodies of rules apply in a cumulative way to the same situation, a hierarchy is made between the two bodies of rules to one make yield, for example the surrender of the effectiveness of the incentive to maintain the classic concept of criminal sanction. Except to surrender the classic conception of Criminal Law to absorb it in a more global conception of the sanction as an incentive. This is probably what is happening.

Indeed this seal does not exist. If what is formally qualified as "Repressive Administrative Law" has been created, it is to increase the effectiveness of sanctions, so that the guarantees of criminal procedure cease to protect enterprises, the idea being also that legal persons do not deserve the same privileges as natural persons and that the technical capacity to create or remove them at will changes the game in the relationship between the public authority and the enterprise. 

It is the courts, always protecting people, which refused this formalism resulting in this law of purely effective sanctions and freed from all classic considerations which had founded Criminal Law and continued to make it the backbone, by releasing from the literal reading of Article 6 of the European Convention on Human Rights the concept of "criminal matters".

Thus, even if the end pursued is the protection of a system or a monumental goal, as soon as the tool is a punishment, the situation in which the person is is of a "criminal" nature, even if the instrument is handled by an administrative judge, or even by the entreprise itself.

Logically, as with Criminal Law, being only the legal form of "criminal matters, the legal regime of the administrative rules of sanctions should be the same as Criminal Law. But it is not because of the application of the theory of incentives. Lawyers and judges are astonished of that, cannot support that and that is why they put limits on this conception while the supporters of the theory of incentives do not admit and do not understand the consequences of this assimilation. This is not due to the simple technique, of this situation of the other, of a case or another one, but to this basic opposition. Indeed, Criminal Law aims to be "autonomous" in the legal system, that is to say develops concepts and regimes which are specific to it because it is a legitimate exception to the Freedom principle to which it essentially pays homage and could not be defined otherwise, while inserted into the notion of "incitement" the technique of sanction does not integrate this at all and is content to borrow from the effectiveness of the penal harshness to make the underlying rule thus endowed effective, the sanction being thus and by a similar effect of nature in perfect dependence.

At first glance, there is therefore a basic opposition between "sanction" and "incentive" whereas intuitively hitting hard is so "convenient and dissuasive" when one wants to obtain from an enterprise such or such behavior.

Indeed, certainly the prospect of a sanction in Ex Post in the event of violation is the best incentive to obedience in Ex Ante to the norm of prohibition and prescription. This is why the most liberal Financial Law is also the most repressive, the Law & Economic Analysis  leading to calculate norms which lead the agent not to have any interest in committing a breach. Obedience is replaced by interest. Competition Law and Financial Market Law are so familiar with it that some have doubted its legal natural, being sort of "natural rules"...

But this also produces very significant feedback shocks, in a assumed ignorance of the principles, however of constitutional value, constituting the basis of "criminal matters". This feedback shocks have been listed previously.

Is this admissible?

There are the judges of the Rule of Law, that is to say above all Constitutional Courts, which have the power to answer such a question. The answer is in European and American Law, which shows their deep unity, that the pure instrumentalisation of sanctions is not admissible, because it is the Rule of Law principles that must prevail. However, developments are taking place in the Law of sanctions, including criminal sanctions, from an Ex Ante conception of these.

 

B. MAINTAINING THE PREVALENCE OF THE RULE OF LAW PRINCIPLES OVER THE PURE INSTRUMENTALISATION OF SANCTIONS

Firstly, in a classic conception of Criminal Law it is a succession of constitutional principles which are ignored : judges shall block a Compliance Law whose only principle would be efficiency: Law cannot be a single "tool of efficiency" , except to no longer be the Law. On the contrary and by essence, Criminal law is a sort of fondamental "tool of ineffectiveness" because it is defined as a legitimate exception to the Freedom of human beings and therefore the guardian of this principle of Freedom, which is foreign to the theory of incentives, but is superior to it and blocks the effects unfolded by it. This justifies principles so ineffective, such as the right of defence, the burden of proofs, etc. 

Secondly, in an overly broad conception of Compliance, consisting in applying it to all the rules that we would like them to be effective because the one who issued them wants it, what that would apply for all the rules, even those that do not are not of public order. In such a "passion for Regulation" putting an end to liberalism and Law, the sanctions allow a public authority to impose in Ex Ante with the agreement of the interested parties what it wants, as can be seen in Asia, repression passing into Ex Ante transforming into rating and voluntary obtaining of obedience for any prescription. 

Yes, if Compliance Law is correctly defined, in consubstantial link with "monumental goals" which alone can justify the violence of the sanction mechanisms, insofar as it is the extension of Regulatory Law. Regulation of the economy is more necessary than ever, while the States no longer have any control on factual powers. Through internalization in enterprises, if "monumental goals" are targeted and controlled, then the restrictive character of the "criminal matter" passes from tool to goal: only monumental goals can justify all the effects previously described, but they justify so.

The courts, in particular constitutional ones, thus block the effectiveness of the sanctions so that the Rule of Law remains. Somes decisions are very famous, in particular as regards financial sanctions, by the prohibition of the pure accumulation of penal and administrative sanctions.

Compliance Law, being itself built on the Rule of Law, produces similar effects. It is thus remarkable that in the proceedings initiated by the European Commission against Facebook, the General Court of the European Union by an order of October 31, 2020 blocked the effectiveness of a measure not only by application of the rights of the defence but also by application of Personal Data Law.

If Compliance Law manages to integrate within it the classic principles of repression, it is because respect for the person, which is its central norm, contained in its Monumental Goals, is a reflection of the classic Criminal Law. . In the same way, Criminal Law is in the process of evolving in economic matters when it directly concerns the expected behavior of enterprises towards an incorporation into the reasoning of the goals that Law wants to achieve.

 

III. CRIMINAL LAX STILL AUTONOMOUS BUT INTERPRETE TELEOLOGICALLY WITH REGARD TO THE COMPLIANCE MONUMENTAL GOALS

The challenge is therefore to redraw the restrictive principle of sanctions no longer in them but with the aim of Compliance served by them. By this passage of the conservation of the restrictive nature of the sanction, no longer in the tool itself of the sanction but in the aim served by it. Not just any rule, as in some countries, not all the rules of what is too broadly called Compliance, which is just "obeying the applicable standards".

Thus, for example, the extraterritorial application of repressive national standards adopted for a single national purpose (for instance embargo) is inadmissible and must be rejected by the Courts, while this same extraterritorial application of standards to combat money laundering is admissible. and practiced by all. Depending on the nature of the risk tackled, terrorism for example, the sanction regime is legitimate or is not legitimate.

More generally, the "monumental goals" which give Compliance Law its substantial definition, while many still reduce Compliance to a simple method of efficiency, or even see nothing legal in it, make it possible to distinguish where the sanction must be a more or less violent tool to achieve the goal because of its legitimacy, the hidden and systemic phenomenon to be combated (for example terrorism or money laundering) or the global nature (for example example environmental risk).

Thus, Criminal Law does not cease to be autonomous, because it is not a question of transforming it into a pure way of carrying out the various procedures required of companies. But it is itself an autonomous corpus of provisions which aim at monumental goals which can justify behavior and on the contrary justify condemnations.

The best example of this is the very principle of "criminal liability of legal persons", about which so much has been discussed. Since its inclusion in French legal system by what was the New Penal Code in 1993, the idea was to use this means of constraint so that entreprises do not escape the consequences of the exercise of their powers, particularly in environmental matters. Then comes the idea that the criminal liability of legal persons was in reality the criminal liability of enterprises, which are - as in Competition Law - the real subjects of law, Criminal Law itself being composed not only of prescriptions prohibiting behaviors but prescribing behaviors. For example actively protecting the environment.

This resulted in the judgment of the Chambre criminelle de la Cour de cassation (Criminal Chamber of the French supreme Judicial Court) of November 25, 2020 stating that the criminal liability of the acquired company will henceforth be transferred to the acquiring company, this transmission only covering financial penalties, the Court specifying that the new solution will only be applied for future cases, except immediate application (that is to say valid as full punishment of a reproachable behavior) if the merger had only taken place to escape criminal liability.

If the purpose of the merger was to escape liability, then this liability must immediately take the form of a sanction for punishing the use of this corporate mechanism, from an Ex Post perspective. On the contrary if the object of the merger was a change of control of a enterprise that remains, which is the ordinary definition of what a merger is, the Ex Ante perspective of sanction as information is in principle (and must be applied only for the future cases). 

Such a decision, remarkable in every way, shows that the sanction is above all an Ex Ante information, with disciplinary value to obtain behavior, and no longer - or no longer mainly - a punishment for past behavior. The sanction, including the criminal one, is therefore an incentive not to do or to do, and not a punishment for what has been done. This remarkable decision is a sign of this evolution.

 

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