Legal Market Overview
The French legal business market in 2019
On the one hand, things look bright. Law firm revenues grew again in 2019 on the back of strong transactional and corporate activity that recalled la joie de vivre of the early 00’s. Lawyers, private equity firms and companies all cashed in. ‘We are back into the same folie!’, commented a partner, referring to the boom in highly leveraged buyouts financed with lashings of ‘cheap money’.
The French CAC 40 ended 2019 at its highest point since 2007. Real estate transactions, especially in the office property sector, gained new highs with Brexit leading major financial companies to move staff from London to Paris.
The country’s infrastructure is being modernised: railways, ports and airports are being privatised; large offshore renewable energy projects are in the works; and urban regeneration is underway in various major cities, including Paris, which is preparing to host the 2024 Olympics.
On the other hand, regionally and internationally, threats abound in all shapes: social, economical, political, judicial and environmental.
Social and political tensions are at their highest level this century. The Yellow Vest protest movements were followed by strikes against the government’s pension reforms, which were among the largest and the longest in the modern history of a country famous for its strike tradition. Even lawyers joined in. There are now serious doubts that President Macron will be able to complete his reform agenda before he leaves office.
Blockades, demonstrations and strikes took their toll on businesses and pushed many – especially retail chains, which were already struggling with the rise of online retailers – into bankruptcy. In addition, some major listed companies, such as Casino and Bourbon, hit difficulties and several airline and travel companies vanished from the market.
For many, it is only a matter of time before a general economic malaise sets in: ‘The bomb is here, the question is when…’, commented a partner. Many thought it would blow in 2019, most bets are now on 2020.
Leading restructuring and insolvency teams were among the most sought after in 2018 and 2019 as firms began recruiting and preparing for a possible downturn. But this time around, firms are less reliant on insolvency activity to soften the blow of a recession.
The proliferation of social, economical, political, regulatory, judicial and environmental threats has significantly changed the legal business, which is no longer heavily focused on transactional activity. The business driver for the 2020s is instead ‘regulatory and investigations’.
Many law firms are rebranding their practices around this concept. Several have created a cross-jurisdictional compliance and investigations group that bring together lawyers from various traditional practice areas, such as the employment, antitrust, IT/data, corporate and dispute departments.
The French state has always been very involved in the economy and remains a shareholder in many strategic companies, especially in the energy and transport sectors. Its continuing influence was seen in blocking of the Renault-Fiat merger announced in 2019.
But what’s really new is the French state’s move towards tighter regulation and control of companies and their management through the rule of law and the use of the judiciary to protect its economy.
This is not just a French spécialité but the local version of a more global trend, a complete reversal of the move towards more unified and globalised rules.
The sovereign rule of law is being used to compete politically and economically. In this, the US led the way by slowly supplanting international standards with US rules.
Former lawyer Raphaël Gauvain, now an elected MP of Macron’s party, was commissioned by the government to look into the issue. His June 2019 report outlined the detrimental extra-jurisdictional effects of US sovereign law on French companies and its economy urged the French state to respond strongly and urgently:
‘The US has led the world into the era of judicial protectionism. While the rule of law was traditionally used to strictly regulate, it has become today a weapon of destruction in the economic war the US is waging against the rest of the world, including its traditional European allies. As of today French companies cannot rely on efficient legal tools to defend themselves against those extra-jurisdictional proceedings which they are the target of.’
The US has meted out record fines to foreign companies by claiming jurisdiction when its currency is used in related-transactions. Following the enactment of the US Cloud Act in 2018, the same logic applies to companies that use US data.
Alcatel, Alstom, Technip, Total, Société Générale and BNP Paribas have all had a bitter taste of this medicine. The French banks paid the highest toll: a $1.34bn fine for Société Générale and a $9bn fine for BNP Paribas.
‘Between 2008 and 2017, 26 companies condemned under the US anti-corruption Act (FCPA) have paid a total amount of fines exceeding $100bn to the US Department of Justice and Security and Exchange Commission: among those 26 companies, 21 were non-US and 14 were European companies. These sanctions are disproportionate and a threat to the survival of the targeted companies‘, warns the report.
Alstom agreed in 2014 to a $772m settlement fine for bribery and several of its high-level executives were imprisoned in the US for acts of corruption committed outside of the US. Simultaneously, it was acquired by US company GE in a deal that shocked the French elite and served as another wake-up call for France.
While the report urges more drastic action, the French system is already adapting. New and more comprehensive compliance systems have been put in place to protect French companies and the economy, while at EU love not much has been done beyond the 2018 GDPR of data protection.
The first major national response to US extra-territoriality was completed through the adoption of the Loi Sapin II, the French anti-corruption and bribery act in 2016, which upended the traditional civil law based culture.
The Loi Sapin II introduces anti-corruption compliance requirements and the possibility of judicial settlements (CJIP) into the French legal framework, in a fashion largely inspired by Anglo-Saxon systems. It also set up the French Anti-Corruption Agency, the AFA, which is tasked with monitoring the anti-corruption programmes of companies.
The AFA started auditing companies at the end of 2018 and monitoring is now ongoing. But the agency, which set high standards for itself from the beginning, is finding it hard to fulfil its mission. In 2019, no companies were fined and it had to engage the Big 4 auditing firms and external law firms to carry out audits on its behalf due to staff shortages.
Several other new pieces of legislation adopted lately have also rendered the old corporate culture more transparent and socially responsible.
Among these, the Anti-Fraud Act, enacted on 23 October 2018, provides more anti-fraud tools and stricter sanctions for cases of aggravated tax fraud. The law notably puts an end to the ‘Bercy Lock’, where a vast majority of cases were settled with the French tax administration. Now, tax fraud cases exceeding a certain level will automatically be referred for criminal prosecution. This should result in a big increase in the number of criminal tax fraud cases being prosecuted. Tax lawyers are also directly affected and are replacing their traditional tax optimatisation advice with a new, very cautious and conservative approach.
Finally, among the most controversial pieces of legislation adopted recently, after the Loi Sapin II, is France’s Duty of Vigilance law of 21 February 2017. It requires French companies with at least 5,000 workers in France and foreign companies with over 10,000 employees to establish and publish a ‘vigilance plan’ outlining the ‘reasonable’ measures they have taken to ‘identify and prevent possible serious human rights, health and safety and environment law infringements’ that could be committed in the course of operations, both inside and outside of France.
The law is historic and there is said to be no equivalent anywhere in the world. Lawyers worry such legislation encourage NGOs all over the world to do their ‘forum shopping’ in France. The number of lawsuits against French and foreign companies in France for human rights and environment violations is expected to significantly increase.
The new law has already come under the spotlight. In January, a group of French city mayors and NGOs used it to launch a climate change lawsuit against Total. The oil giant is accused of failing to adopt the required measures to prevent global warming by lower its emissions, in breach of the commitments it agreed to at the 2015 United Nations Climate Change Conference in Paris.
This might be the start of something new. Environment lawsuits currently represent a very small portion of cases heard by the courts. But a bill introduced by the government in January 2020 aims to create a special prosecution division within the French judicial system.
In addition to introducing compliance requirements into the French legal system, criminal prosecutions were also significantly boosted. At the end of 2013, the former Hollande government set up the Parquet National Financier (PNF), a new division with the mission of investigating complex financial crimes, such as tax fraud and corruption. The PNF is now making regular headlines, handing out record fines of unprecedented magnitude. In February 2019, UBS was fined €3.7bn for tax fraud, a conviction the Swiss bank is appealing. In September 2019, Google agreed to pay a €500m fine to settle a criminal tax case. HSBC also agreed in 2017 to a €340m fine to settle its tax fraud case.
The PNF is also leading high-profile anti-corruption investigations that fall outside its national jurisdiction in an attempt to prosecute French companies that may otherwise face charges from foreign authorities. The Lafarge investigations are particularly telling in that regard, with accusations of complicity in crimes against humanity, financing of terrorist enterprises and endangering of lives in Syria by the French cement company.
Ironically, the PNF now finds itself competing and even collaborating in some cases with other international prosecutors in the US and the UK. As a result, French and international companies are now the subject of investigations by foreign and national authorities. The Airbus case is a striking example of this as the company is being investigated simultaneously by the French, US and UK authorities for the same acts. Those investigations are now coming to an end following the announcement in early 2020 of a €3.6bn settlement with the US, UK and French regulators, of which €2.1bn is to be paid to the PNF.
Companies are not alone in feeling the new, tougher hand of the French authorities. Politicians and high-level executives are now at risk of prosecution. Several headline prison sentences handed out in 2019 set a new tone for corruption and white-collar crime.
Orange’s former CEO and management team were handed a prison sentence for collective moral harassment after more than 30 employees took their lives in the late 2000s’ when the telecoms company resorted to drastic methods to cut jobs. The judgment is historic as this is the first time a French judge has held that management methods can constitute moral harassment. Previously, moral harassment has been applied on a case by case basis and had never been considered a part of a company’s culture.
Patrick Balkany, a well-known political figure and former long-time mayor of Paris’s neighbouring city Levallois-Perret and his elected wife Isabelle Balkany were both convicted of tax fraud and money laundering and given a prison sentence in a first-of-its-kind case. Mr. Balkany was taken to a prison cell right after the judgment was handed out in a scene that generated a lot of public attention. Unlike her husband, Mrs. Balkany was deemed too ill to serve her prison sentence and remains free. They are both appealing the judgment.
The list of elected officials currently awaiting trial is long, and includes former President Nicolas Sarkozy and Prime Minister François Fillon, who are scheduled to face trial in 2020 in separate cases.
It is easy to see how ‘compliance and investigations’ practices have quickly found their place in the French legal market and upended a traditional civil-law based culture whose principles and philosophy are by nature hostile to it.
French companies have even started hiring law firms to help conduct internal investigations when corruption or whistle-blowing accusations surface.
However, many lawyers worry about the negative effects that an excessive compliance culture could have. They point out that top corporate management is increasingly at risk of being prosecuted while basic defence rights are being ignored.
One lawyer who worked on a high-profile investigation noted that: ‘during internal or governmental investigations, corporate executives are the ones being sacrificed by their companies. Their basic defense rights are being ignored. Unlike for judicial investigations, there is currently no clear existing legal framework imposing the respect of basic defense rights during those types of investigations, including the right to a lawyer’.
It is also worth noting that digital businesses are currently facing extreme scrutiny from the government, regulators and prosecutors.
Google was hit by several different agencies in 2019: the French data protection agency CNIL handed out a €50m fine for GDPR violations, while the French Competition Authority fined it €150m for abusing its dominant position. Google also paid a €500m tax fraud settlement fine to the PNF.
Uber is also facing several court proceedings over the independent status of its drivers and couriers in France, while Airbnb is the target of new regulations and political attacks from the mayor of Paris.
In July 2019, a new 3% tax on digital services (also nicknamed the GAFA tax – a French acronym for Google, Apple, Facebook and Amazon) was enacted after the EU failed to create a similar EU tax regime. The law, which creates a special tax on major French and international digital services companies, was strongly opposed by the US, which threatened to retaliate by taxing certain French imports. As of January 2020, the government announced that the enforcement of the law has been temporarily suspended for a year.
Main market’s moves in 2019:
2019 was another strong memorable year in term of partners’ moves. They were driven by various factors including conflict of interests, and for French firms mainly, by major governance disagreements.
Among the most notable are:
– FIDAL, which saw the defection of 130 of its tax and international expert lawyers for former long-time partner KPMG Avocats. Consequently, the former is now suing the latter before the professional regulatory body and in courts.
– French firm Franklin went through a major wave of combined departures and arrivals between 2019 and early 2020. The firm lost its corporate practice: founding partner Mark Richardson joined French firm Archers A.A.R.P.I., Magali Masson went to De Pardieu Brocas Maffei; while US firm Bryan Cave Leighton Paisner LLP recruited more than 20 of Franklin’s former lawyers including corporate partners Christian Sauer and Kai Völpel alongside real estate tax star partners Christine Daric and Olivier Mesmin and real estate partner Henry Ranchon. It is a major move for the US firm which has been discreet in Paris since its inception in 2008 and grew twice its size consequently (it now totals more than 40 lawyers and jurists).
In return, Franklin hired back founding partner and employment specialist Patrick Thiébart who joined from Jeantet, along with employment law partner Myriam de Gaudusson who was previously at De Gaulle Fleurance & Associés, and former governmental minister Michel Sapin, responsible for the French compliance law Sapin II, who joins the firm as senior adviser. Corporate partner Alexandre Marque who left in 2015 for a position of general counsel at Altice, announced his return early 2020 to the firm he co-founded in the 2000. Banking and finance partner Stéphan Alamowitch also joined early 2020 from UGGC Avocats.
– K&L Gates LLP experienced a major wave of departures: four of its partners and seven associates, including corporate partners Jean-Patrice Labautière and Nicola Di Giovanni, banking and finance partner Mounir Letayf and tax partner Bertrand Dussert went to Winston & Strawn LLP in 2019. IP/IT partner Etienne Drouard moved to Hogan Lovells (Paris) LLP early 2020.
– Andersen Tax & Legal, which officially opened in Paris in 2018 after French firm STC Partners became a full member of the network, was short-lived and closed its doors at the end of 2019 after filing for bankruptcy. Several of its former members, including Delphine Bariani, Stéphanie Desprez, Angélique Vibert, Pierre Bouley and Etienne Pujol, set up a new boutique called Berry Avocats.
In term of legal practice areas, insolvency and restructuring made headlines once again in 2019:
– Top tier firm Weil, Gotshal & Manges LLP lost several of its key members recently: star partner Philippe Druon went to Hogan Lovells (Paris) LLP, and Fabienne Beuzit joined Jones Day in 2019. In response, the firm hired back Anne-Sophie Noury, who had set up BDGS Associés‘ practice in 2016.
– Hogan Lovells (Paris) LLP, which strongly enhanced its ranks after hiring star partner Philippe Druon from Weil, Gotshal & Manges LLP, conversely saw Romain de Ménonville leaving to strengthen Bird & Bird‘s practice.
The international arbitration market practice in Paris is also the scene of regularly major moves, including in 2019:
– French dispute resolution boutique Betto Perben Pradel Filhol, formerly named Betto Seraglini, re-branded itself following the departure of several of its top partners: former founding partner Christophe Seraglini went to Freshfields Bruckhaus Deringer LLP, while Gaëlle Le Quillec and Julien Fouret joined Eversheds Sutherland (France) LLP which now has a strong team. Founding partner Jean-Georges Betto, Gaëlle Filhol and newly promoted partner Alexandre Reynaud remained.
In the dispute resolution area, notable changes for 2019 include:
In the employment law sector:
– Jeantet lost its entire employment practice in 2019: the highly recognised Jean Néret and Olivier Angotti went to launch French firm FTMS Avocats‘ practice; while Patrick Thiébart went to Franklin, and Déborah David to De Gaulle Fleurance & Associés.
– employment law firm Fromont Briens saw the departure of a team led by several of the firm’s top partners in Grégory Chastagnol, Benjamin Desaint, Leslie Nicolaï and Alexandre Roumieu to create new boutique firm FACTORHY in 2019.
Other key moves in other various practice areas for 2019 include:
– in the tax area: partner Nadine Gelli left De Pardieu Brocas Maffei to go to Kirkland & Ellis LLP which is slowly building a strong team in the private equity area, while tax partner Bruno Leroy left Dechert LLP to strengthen Paul Hastings LLP‘s ranks.
– in the real estate sector: Alexandre Poupard left Dentons to join Mayer Brown, Guillaume Aubatier went to King & Spalding LLP from Ashurst LLP which in return took Simmons & Simmons from Simmons & Simmons, while Sarah Fleury went from Orrick Rambaud Martel to Goodwin.
– in the project and infrastructure sector: Pascal Agboyibor, who was formerly head of Orrick Rambaud Martel’s Africa practice, founded Asafo & Co.; Ashurst LLP significantly boosted its international project practice after hiring new partners Tom Longmuir from Allen & Overy LLP and Mark Barges from Linklaters; corporate partner Benjamin de Blégiers moved from Clifford Chance, to Weil, Gotshal & Manges LLP; DLA Piper welcomed Jérôme Pentecoste from Gowling WLG which also lost Jérôme Pattenote to Simmons & Simmons.
– in the IT sector: DS Avocats integrated boutique firm Staub & Associés including lead partner Sylvain Staub and Antoine Gravereaux.
Finally, California-based law firm Sideman & Bancroft Europe opened in Paris in January 2020. The Paris office is currently managed by Béatrice Martinet who has been a partner with the US firm since 2014.
The podium of law firms in France is made up of the following:
– French firms: Bredin Prat, Darrois Villey Maillot Brochier, Gide Loyrette Nouel A.A.R.P.I. – which remains the largest French international law firm with some 550 lawyers spread across 12 offices worldwide – and De Pardieu Brocas Maffei.
Other very strong and well established US and UK firms include: Ashurst LLP, Baker McKenzie, CMS , Dechert LLP, Dentons, Gibson Dunn, Herbert Smith Freehills LLP, Hogan Lovells (Paris) LLP, Mayer Brown, Paul Hastings LLP, Shearman & Sterling LLP and Willkie Farr & Gallagher LLP.
Also recommended are: Altana, Archers A.A.R.P.I., AyacheSalama, BCTG Avocats, Carbonnier Lamaze Rasle, De Gaulle Fleurance & Associés, DS Avocats, Franklin, FTMS Avocats, FTPA, Jeantet, LPA-CGR avocats, Lacourte Raquin Tatar and Racine. Many boutique French law firms also rank among leading firms and are notably found in the arbitration, employment, IP, tax and white-collar crime areas.