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This issue features articles from the United Kingdom, Australia and Canada.
The French double prosecution regime of market abuse (criminal and administrative) has been declared unconstitutional by a decision of the French Constitutional Council of 2015, although without relying on the ne bis in idem principle. An important reform of the French system for prevention of market abuse is now ongoing as a result.
Administrative regulation of market abuse was introduced in France in 1989 to supplement the existing criminal regulation. This form of regulation was intended to provide an additional specific and appropriate response to market abuse through a dedicated procedure at a time when financial markets were becoming increasingly complex, without detracting from criminal liability.
This solution encountered resistance when it was first implemented for its possible breach of the ne bis in idem principle. This is a legal doctrine derived from Roman law to the effect that no legal proceedings can be instituted twice in respect of the same cause of action and is similar to the double jeopardy principle found in common law jurisdictions (the doctrines of autrefois acquitand autrefois convict). The debate was rapidly resolved after the French Constitutional Council validated the mechanism in 1989 by finding that the regime was not a breach of the ne bis in idem principle.
The European Union has supported this approach of maintaining criminal standards and providing a special procedure to ensure that market abuse is prosecuted efficiently. Indeed, Directive 2003/6/EC (MAD I) required Member States to ensure that appropriate administrative measures and sanctions are implemented. Directive 2014/57/EU (MAD II) restated in its preamble that “It is essential that compliance with the rules on market abuse be strengthened by the availability of criminal sanctions which demonstrate a stronger form of social disapproval compared to administrative penalties”.
More recently however, the ne bis in idem principle reappeared before the European Court of Human Rights (ECHR), leading the French Constitutional Council to re-examine the French market abuse regime in 2015.
In 1989, following the Pechiney-Triangle insider dealing case, the French Parliament enacted Law n°89-531 aiming at promoting the security and transparency of financial markets. Among other measures, the Law created administrative offences in case of market abuse.
The Constitutional Council (Conseil Constitutionnel) was asked to evaluate compliance with the Constitution and decided that the co-existence of administrative and criminal sanctions did not breach the Constitution as they created distinct offences (Decision n° 89-260 of 28 July 1989).
The Constitutional Council also stated that double regulation was acceptable provided that the final penalty that could be imposed by both the criminal court and the administrative body was proportionate, regardless of the fact that a person could be prosecuted in respect of the same facts twice by two different authorities. The final penalty would be proportionate if the aggregate amount of the penalties did not exceed the highest possible penalty.
In 2013, an application was made to the ECHR in the context of the criminal prosecution of a market manipulation offence in Italy.
In its decision, the ECHR noted that the criminal proceedings were based on the same facts for which the applicant had already been sanctioned by the market regulator (ECHR Grande Stevens / Italy, 4 March 2014). The ECHR considered that, although the sanctions did not appear disproportionate, both procedures were of a criminal nature, taking into account the severity of the sanctions. As a consequence, the ECHR ruled, on 4 March 2014, that the criminal prosecution should be closed immediately as it breached the ne bis in idem principle in accordance with Article 4 of Protocol No. 7 of the Convention.
Articles L.465-1 and L.621-15 of the French Monetary and Financial Code (FMFC), which define market abuse offences and set out the related sanctions, have been modified several times to increase the powers of the AMF (the French financial market authority) and the amount of potential sanctions (up to €10 million in the 2008 version and €100 million in the current version of these provisions). The compliance of these articles with the French Constitution was challenged during the EADS case before the Paris Criminal Court (the parties had already been found not guilty of any misconduct before the AMF sanction committee). For the first time, the challenge was referred to the Constitutional Council (previous decisions had systematically rejected the referral of such requests considering that it had already been settled by the Constitutional Council).
In its decision, rendered on 18 March 2015, the Council, contrary to the ECHR, did not turn to the ne bis in idem principle but relied on the principle of “nécessité des délits et des peines”, that offences should be created and penalties should be imposed only where necessary (Decision n° 2014-453/454 and 2015-462). The Council ruled that, for unregulated persons or entities, double prosecution of market abuse breached this principle since:
As a consequence, the 2008 version of Articles L.465-1 and L.621-15 was considered unconstitutional and will be partially repealed as from 16 September 2016. In the meantime, where there has been double prosecution, the proceedings with the later starting date, whether administrative or criminal, are invalidated (as in the EADS case) and new double prosecutions cannot be started.
Academics have pointed out that this decision of the Constitutional Council is not consistent with European case law, since it uses different reasoning to exclude the simultaneous application of criminal and regulatory provisions. Situations could, therefore, occur where the French system would still allow the double prosecution of market abuse, notably against regulated persons or entities.
The Constitutional Council recently gave an example of the possibility of a double prosecution.
At the end of 2015, further challenges were made to the constitutionality of other market abuse provisions in the FMFC. On 14 January 2016, the Constitutional Council confirmed that the criteria set out in the EADS case apply generally, and consequently ruled that the 2006 version of article L.621-15 of the FMFC did comply with the constitution, since it set out different sanctions for administrative and criminal offences (Decision n° 2015-513/514/526).
As a result, it could be argued that French law does not comply with the ne bis in idem principle as interpreted by the ECHR since it allows double prosecution by administrative and criminal authorities in certain circumstances.
By contrast, on 18 June 2015, the Paris Criminal Court (“Tribunal correctionnel”) held, in a corruption case related to the Oil-for-Food Programme, that entities or persons could not be prosecuted if they had previously entered into Deferred Prosecution Agreements (“DPAs”) with the Department of Justice (“DoJ”) or the SEC in the United States on the basis of similar facts, relying expressly on the ne bis in idem principle. As prosecution by the SEC is similar to prosecution by the AMF, this result is arguably consistent with the standards set out by the Constitutional Council. However, the reasoning is still different, in that criminal courts expressly applied the ne bis in idem principle to exclude double prosecution by administrative and judicial authorities.
Given these different decisions, French legislation is necessary to reform the current regulation of market abuse. There are three options for reform.
The first option is to decriminalise market abuse, by removing criminal sanctions or by restricting the application of criminal or administrative sanctions to either unregulated or regulated persons or entities only.
The second option is to create a specific tribunal dedicated to financial markets-related offences. This could be implemented by extending the current scope of competence of the AMF sanction committee to allow it to prosecute criminal offences.
The third option (which has been proposed by the AMF) is to prohibit double prosecution and create a “filter” that would allocate each case either to the AMF or to the criminal authorities. Only the most serious cases (i.e. when a prison sentence appears to be justified) would be referred to the criminal courts.
This third option was partially adopted in a first bill which was presented on 7 October 2015 but never enacted. Then, more recently, a simpler reform was proposed in a bill presented to the National Assembly on 24 March 2016 and scheduled to be examined during Spring 2016. It clearly prohibits double prosecution. It also provides that the choice of prosecuting authority would require prior agreement with the AMF or the Financial Prosecutor. In the absence of agreement, the Paris Court of Appeal would rule on attribution after two months.
These provisions should be assessed in the light of the new anti-corruption law to be adopted soon (Sapin II), which, among other measures, aims at reinforcing investigatory powers and sanctions against market abuse.
The French legal framework for the regulation of market abuse will be redefined or, at least, clarified in the next months. One can only hope that it will then comply unequivocally with both European and French case law, in order to end the uncertainty surrounding the prosecution of market abuse in France.
This issue features articles from the United Kingdom, Australia and Canada.
Welcome to the twelfth edition of Global asset management quarterly.