Financial Regulations and Enforcement:
Thursday, October 5th. 6:30 pm
Consulate General of France
934 5th Ave, New York, NY 10021, États-Unis
With the exceptional presence of :
• Michel A. Perez, Associate Director of Labex ReFi in the United States
• Professor Jennifer Arlen, New York University Law School; Director
of the Program on Corporate Compliance & Enforcement
• Thierry Philipponnat, CEO of Institut Friedland & Director of AMF
and ACPR (“Sanctions Commission”), French Financial Supervision
• The Honorable Jed S. Rakoff, United States District Judge (Southern
District of New York) & Author.
Minutes by Michel A. Perez, Associate Director of Labex ReFi in the United States
This event was hosted at the Consulate General of France in New York. The Consul General, Anne Claire Legendre made brief welcoming remarks and introduced the speakers. The panelists were Professor Jennifer Arlen, Director of the Program on Corporate Compliance and Enforcement of NYU Law School; Richard Coffman General Counsel of the Institute of International Bankers (IIB); Thierry Philipponnat, Member of the Supervisory Board of AMF (French equivalent of SEC) and of the Disciplinary Commission of ACPR (the French Banking Supervision Agency) and the Honorable Judge Jed S. Rakoff of the Southern District of New York US Federal Court. The moderator was Michel Perez, US Representative of Labex ReFI.
During the panel discussion, the speakers shared their views, concerns and expectations on the challenges of international financial regulation and enforcement. They presented their experiences in their own fields of expertise and agreed that to be efficient financial supervision needs to be improved and better coordinated.
- International regulation: challenges and obstacles
- Context in the US and in France
Mr Philipponnat presented the administrative authorities that enforce financial rules in France – namely Autorité des marchés financiers (AMF) and Autorité de contrôle prudentiel et de resolution (ACPR). In terms of number of controls, France stands half-way between the Anglo-Saxon system – embodied by the US and the UK – and the rest of Europe. He underlined the fact that the French anti-corruption agency has been created very recently (December 2016 – Loi Sapin 2) and is still in its early days.
Mr Coffman mentioned the policies created to enforce US law for international banks, mainly the Bank Secrecy Act, with some very high-profile cases. Making banks comply to US regulations was a general challenge, particularly in the aftermath of Dodd-Frank Act (2010), and it was not an issue just for foreign banks.
The issue of extraterritorial application of US law is very sensitive. Normally extraterritoriality only apply when American interests are affected and/or it is stipulated in the text of the law or by Congress. US enforcement agencies used the fact that some banks had a US branch to prosecute them. But there was also the case of a Swiss bank without a US branch, which was prosecuted all the same because it helped American nationals to evade taxation.
- Some problematic situations
Judge Rakoff mentioned the difficulties to find a legal common ground for discussion between the judiciary authorities from various countries. He referred to a case where the UK Serious Fraud Office had to cooperate with US prosecutors and other European prosecutors. The problem was that the 5th-amendment right on self-incrimination does not exist in British law and this technical question caused serious cooperation issues between the prosecutors throughout the enquiry.
Mr Philipponnat also alluded to a similar case in Europe, where the condemnation had been invalidated by the Court of appeal because the Canadian investigators involved in the process had not respected article 6 of the EU Convention.
Prof. Arlen insisted on the fact that though the focus has to be on punishing the individuals, no government has the resource to detect wrongdoing in a financial institution and therefore has to encourage the cooperation of the corporate entities themselves. Thus the approach from the prosecutors is to offer leniency when the targeted corporate entities cooperate with the investigations or in some cases report themselves wrongdoing before the discovery process has been initiated by the regulators. This is often misunderstood by foreign financial institutions as they do not share the American traditions on this matter, they tend first to resist prosecution, which is unacceptable to the US Department of Justice.
- Possible strategies for the future
To Prof. Arlen, the key for effective compliance is that firms must be motivated enough to cooperate with the supervisory authorities. It implies serious sanctions so as to deter crime, but companies should also be encouraged to detect misconduct from within, to investigate and to report to enforcement authorities.
She also suggested that drafting and implementation of regulations should take into account developments in other countries. France could learn from the US and vice versa.
On the whole, Judge Rakoff identified two trends in white-collar crime. While prior to 2000, enforcement actions tended to be brought against individuals, it is now more against companies. This brings about new issues, namely dealing with corporate culture and forcing companies to adapt. To Judge Rakoff, prosecuting individuals has a more deterrent effect.
Given that more and more cases involve parallel proceedings – between the US and other jurisdictions – judges and prosecutors regularly speak with their counterparts in other jurisdictions. However the degree of cooperation is partly based on personal affinities and could be hampered by language issues. It is thus difficult to assess how deep and effective are cross border consultations among magistrates.
Mr Philipponnat explained in detail the new French anti-corruption procedure – without a guilty plea – called “Convention judiciaire d’intérêt public (CJIP)” that had been implemented by a recent act, the “Loi Sapin 2”. Yet, as corporations have the choice between the CJIP and a public prosecution – where the guilty dimension is kept – and given that French judges have not been very harsh so far in corruption cases, it is not sure that corporations will choose the CJIP procedure.
He also underlined that there was excellent cooperation for specific issues between international bodies, for the enquiry on the ground, so that the problem was mostly that of sanctions.
Mr Coffman insisted on the fact that there were possibilities for cross-border consensus.
Two questions from the audience dealt with the challenges of bitcoin and crypto-currency. Mr Philipponnat explained that these were still unregulated areas but on the agenda. He asserted that it was a work in progress with regulation projects coming very soon.
All panelists and the moderator emphasized the regulation of the financial sector needs to be adapted to a fast changing environment and, if the French consulate is willing to host it, a new panel discussion in one year time will probably assess substantial transformations.