Le Verrou de Bercy, between wobble and resistance

A look back at the CAHUZAC affair – a politico-financial scandal highlighting the flaws in a controversial system

We are in 2013, Jérôme CAHUZAC is then Minister in charge of the Budget at Pierre MOSCOVICI‘s Ministry of Economy and Finance. He wants to embody a policy of fiscal firmness in a context of economic crisis. At the same time, Médiapart, the online news website, revealed the concealment of accounts held abroad and, what’s more, of undeclared funds. Jérôme CAHUZAC denies all responsibility, the Bercy Lock has not been lifted and the public prosecutor’s office is on the alert.

Under the terms of Article L.228 of the French Tax Procedures Code (LPF), the “Verrou de Bercy” (Bercy’s lock) is a system which, in the case of tax fraud, makes the initiation of criminal proceedings by the public prosecutor’s office conditional on the filing of a prior complaint by the tax authorities and a favorable opinion from the Tax Offences Commission. This mechanism was instituted by the law of June 25, 1920¹⁾Law of June 25, 1920 creating new tax resources. following the creation of personal income tax and the general offence of tax fraud. Its creation is justified by the legislator’s desire to settle out-of-court tax adjustments with defaulting taxpayers in return for the payment of an administrative fine, while only the most serious cases were subject to criminal prosecution. The law of March 22, 1924²⁾The New Tax Law (double decime) – Finance Law of March 22, 1924 reinforces the system by giving the Minister of Finance sole discretionary power to decide whether or not to prosecute.

The “Verrou de Bercy” (Bercy’s lock) is therefore an exorbitant mechanism under ordinary law, giving the tax authorities a monopoly on criminal prosecution for tax fraud. This is an exception to the prosecutor’s powers under articles 40 paragraph 1 and 41 paragraph 1 of the Criminal Code, relating to the freedom to prosecute and to carry out or have carried out the acts necessary to investigate and prosecute offences.

Questions then arise as to whether this procedural wall complies with fundamental principles, notably with regard to respect for the principle of separation of powers enshrined in article 16 of the Declaration of the Rights of Man and of the Citizen and repeated in the preamble to the 1958 Constitution, as well as the principle of independence of the judiciary guaranteed by article 64 of the Constitution. In a decision dated July 22, 2016, the French Constitutional Council³⁾Decision No. 2016-555 QPC OF JULY 22, 2016 does not examine the infringements of these principles, but merely tacitly states that the procedure complies with the Constitution and does not “disproportionately infringe” fundamental rights. A curious decision, which suggests that the principle of separation of powers may be subject to a “proportionality test”.

Moreover, what about the breach of equality before the law caused by the fact that some taxpayers can escape criminal prosecution by the sole will of the administration, but also by the difference in treatment between common law and tax fraud offenders? Here again, the Conseil did not see any discrimination and drew its reasoning from established case law, considering that that “it is open to the legislature (…) to provide for different rules of procedure (…) on condition that these differences do not result from unjustified distinctions and that equal guarantees are provided to litigants”. do not result from unjustified distinctions and that equal guarantees are provided to litigants.

Between a variable-geometry separation of powers, a potential breach of equality before the law suggesting the existence of a two-tier justice system, and a profound lack of transparency on the part of the administration, we seem to be faced with a legal cocktail that breaks with the general principles of law.

Back to the CAHUZAC affair. In the face of public pressure, the latter resigned; otherwise he would have had to decide whether to take legal action against him. The Bercy bolt has still not been lifted, but the public prosecutor’s office is using legal maneuvers to put the former budget minister under investigation. The civil action brought against him is therefore not based on tax fraud or the concealment of tax fraud, as this offence is also covered by article L.228 of the LPF, but on tax fraud laundering.

However, this legal muddle has already been validated by the Quai de l’Horloge judges in their TALMON ruling of 20/02/2008⁴⁾Cour de cassation, Criminal Division, February 20, 2008, 07-82.977, Published in the bulletin by holding that the offence of money laundering constitutes a “general, distinct and autonomous” offence from the offence of tax fraud, and therefore allows courts to prosecute the offence of money laundering of tax fraud even though the primary offence (tax fraud) has not been prosecuted. In other words, tax fraud laundering is not subject to article L.228 of the LPF and therefore allows the public prosecutor to initiate proceedings on his own initiative.

A recent decision of the Court of Cassation RICCI of 29/01/2020⁵⁾Court of Cassation, Criminal DivisionJanuary 29, 2020 (17-83.577) once again confirms the latter, admitting the existence of a prejudice resulting from money laundering distinct from that resulting from tax fraud, but requiring the justification of a prejudice specific to money laundering and disconnected from the amount of duties evaded.

The tidal wave caused by the CAHUZAC affair forced the legislator to intervene for moral and political reasons. The Bercy bolt has therefore been adjusted and the public prosecutor’s office has regained certain prerogatives. The National Financial Prosecutor’s Office (Parquet national financier – PNF) was created by the law of December 6, 2013 on tax fraud and serious economic and financial crime.

However, the reform of particular interest to us is the one introduced by the law of October 23, 2018, which lifted tax secrecy for public finance officials vis-à-vis the public prosecutor’s office, regardless of the existence of a complaint, a denunciation or ongoing legal proceedings. There is also talk of automatic forwarding to the PNF of cases involving evaded duties in excess of a threshold set at €100,000 or accompanied by surcharges, notably in the event of concealment of foreign accounts, discovery of a concealed activity, opposition to a tax audit or a repeat offence. The threshold has been raised to €50,000 for citizens who are required to declare their interests and assets to the HATVP (Haute Autorité pour la Transparence de la Vie Publique). In this case, elected representatives and senior civil servants are concerned. In short, it is only in these specific cases that the initiation of public action is no longer subject to the filing of a prior complaint by the administration.

However, another new feature of the reform may be seen as contradictory to the desire to relax the Bercy Lock. Negotiated justice seems to come to the rescue. The Public Interest Judicial Agreement has been extended to cover tax fraud. As a reminder, this agreement is an alternative dispute resolution measure, instituted by the Sapin 2 law of December 9, 2016 on corruption, and enables public prosecution to be extinguished provided the obligations of the agreement are met.

For anti-Verrou supporters at Bercy, the main idea is to impose a criminal sanction on behavior that undermines the republican pact. Its scope is limited by the fact that the introduction of this alternative merely constitutes an acknowledgement of the facts, without leading to a declaration of guilt. It is therefore not accompanied by any entry in the criminal record for frauds considered to be on a large scale. We’re also back to the same effects of the Bercy Lock that have already been criticized, creating a distinction between common law and tax fraud offenders. It should be noted, however, that for the time being, only legal entities benefit from this alternative, as natural persons remain excluded.

The changes made to the Bercy Lock may be considered too timid, given the limited areas of competence available for the free movement of public action. While the tax authorities’ powers have been reduced, the public prosecutor’s office remains under their supervision. This European exception also raises another issue. Last November’s appointment of the European Financial Prosecutor’s Office may well further weaken the administration’s monopoly, or in the opposite case, alter France’s participation in the European fight against financial crime. Article 6 of Council Regulation (EU) 2017/1939 of October 12, 2017 states that the European Financial Prosecutor’s Office aims to operate independently, without interference from Member States. It remains to be seen how this new European body’ s research, prosecution and prosec ution functions will fit in with those of the tax authorities.