Tax Fraud and the CJIP: How France's Deferred Prosecution Agreement Works in Practice

Since the loi Sapin 2 (Sapin 2 Act) of December 9, 2016, and its extension to tax fraud by the Act of October 23, 2018, the convention judiciaire d'intérêt public (CJIP, France's deferred prosecution agreement for corporate entities) has fundamentally transformed the criminal handling of economic and financial misconduct. For companies under investigation, it often represents a more favorable outcome than a full trial.

TL;DR

• The CJIP allows a legal entity to extinguish public criminal action without any admission of guilt.
• It may include a fine (up to 30% of average annual revenue over three years), a compliance program, and victim compensation.
• It is available for corruption, influence peddling, laundering of tax fraud proceeds, and, since 2018, tax fraud itself.
• It is negotiated with the prosecutor's office and approved by the president of the tribunal judiciaire (court of first instance).

Legal Framework of the CJIP

The CJIP is governed by article 41-1-2 du Code de procédure pénale (article 41-1-2 of the French Code of Criminal Procedure). It may be proposed by the procureur de la République (public prosecutor), before criminal proceedings have formally commenced, to any legal entity under investigation for:

• offenses of corruption, influence peddling, and related crimes;
• laundering of tax fraud proceeds;
• since the Act of October 23, 2018, tax fraud itself and related offenses.

It is negotiated between the prosecutor's office and the company, typically through its counsel. Once accepted, it is submitted for approval (homologation) by the president of the tribunal judiciaire following a public hearing.

The Components of a CJIP

A CJIP may include three types of obligations, which are not cumulative but are frequently combined.

The Public Interest Fine

This is the central financial component. It is capped at 30% of average annual revenue over the three financial years preceding the discovery of the misconduct. The calculation takes into account the benefits derived from the misconduct, as well as aggravating and mitigating factors.

The practice of the Parquet national financier (PNF, France's specialist financial crimes prosecutor) has produced established ranges: large-scale tax fraud regularly results in fines of several tens or even hundreds of millions of euros. The CJIP with HSBC Private Bank in 2017 (300 million euros) and Google France in 2019 (500 million euros) remain the benchmark references.

The Compliance Program

Implemented under the supervision of the Agence française anticorruption (AFA, French Anti-Corruption Agency), the compliance program is designed to prevent recidivism. Its duration does not exceed three years. It typically includes:

• a risk mapping exercise;
• internal control procedures;
• training for exposed employees;
• an internal whistleblowing mechanism;
• regular audits.

Victim Compensation

The CJIP may provide for payment of compensation to identified victims. This component is increasingly standard, particularly where the investigation has revealed concrete harm.

The Negotiation: A Critical Juncture

"The CJIP is a settlement. Like any settlement, it requires preparation and negotiation. The ability to present a solid economic analysis, demonstrate the company's cooperation, and propose a credible compliance program makes all the difference to the final quantum."

Several factors weigh on the negotiation:

1. Prior cooperation by the company (self-reporting, voluntary disclosure of documents).
2. The existence of a prior compliance program, even if imperfect.
3. Internal identification and sanction of the individuals responsible.
4. A precise economic assessment of the benefits derived from the misconduct.

Defense counsel intervenes before the formal proposal is made, in technical dialogue with the prosecutor's office, sometimes over a period of several months.

The Approval Hearing

The CJIP is submitted to the president of the tribunal judiciaire for approval (homologation). The hearing is public. The judge verifies:

• the procedural regularity of the agreement;
• the proportionality of the measures to the seriousness of the facts;
• the viability of the compliance program.

The president may refuse approval, which returns the parties to ordinary criminal proceedings. Such a refusal remains rare in practice but is not merely theoretical. The drafting of the agreement must anticipate the hearing.

Pitfalls to Avoid

Underestimating the Reputational Dimension

The CJIP is made public. The reasons, the quantum, and the detailed report are published on the websites of the prosecutor's office and the AFA. The drafting of these documents is part of the negotiation.

Neglecting the Defense of Individual Executives

The CJIP extinguishes public criminal action only against the legal entity. Individual executives remain subject to personal prosecution. Constructing a cross-defense strategy that reconciles the sometimes-divergent interests of the company and its officers is critical.

Accepting Too Quickly

Time pressure and communication concerns can push toward a premature acceptance. A thorough analysis of how the benefits derived from the misconduct are assessed, and of the aggravating factors the prosecutor has identified, often makes it possible to reduce the final quantum significantly.

In Summary

The CJIP has become the Parquet national financier's preferred tool in complex tax fraud and corruption cases. For the company under investigation, it represents a genuine opportunity to avoid trial and conviction, but at a cost that can be substantial.

A successful CJIP requires rigorous preparation, a solid economic analysis, and careful coordination with proceedings opened against individual executives. Our firm advises companies and their officers at every stage of this process.