Introduction

Matrix organization

Mergers by absorption

Risks related to the expansion of the scope of criminal liability of legal entities

Validity conditions

Proof of delegation

Exemption from individual liability of delegator

Attribution of offense to legal entity

Delegations of authority

Criminal risk management within business organizations

Complicity in crimes against humanity

Breaches of secrecy

Personal data breaches

Theft

Extortion

Blackmail

Fraud

Misappropriation

Receiving/concealment of unlawfully obtained property (recel)

Attacks on automated data processing systems

Money laundering

Misappropriation by public official (concussion)

Corruption and influence peddling

Unlawful acquisition of an interest

Favoritism

Forgery and use of forgeries

Violation of Criminal Code

Offenses under the Monetary and Financial Code

Offenses under the Commercial Code

Environmental Code violations

Offenses arising from other codes

Types of offenses

Offenses under the Criminal Code, the Commercial Code, or the Environmental Code, Criminal procedure

White Collar Crime (en cours)

It is not uncommon for corporate groups with an international presence to adopt a so-called “matrix” organization, which combines functional and divisional organizations.

Functional organization involves separating the different functions of an undertaking according to a well-defined hierarchy. Divisional organization is based on the creation of several autonomous divisions, each managing a specific area of activity. Matrix organization overlays the company's functions (R&D, HR, sales, marketing, etc.) with its divisions (geographical areas, product or service lines, etc.). It therefore groups together people with the same or similar skills, particularly within business units or areas, which lack legal personality, in an approach based on a project-oriented strategy that meets a need for cross-functionality and cooperation. Different collaborators work together on a common project within the same division, allowing for the intersection of specializations and the concentration of skills and technical capabilities.

If the matrix organization has the advantage of optimizing various company structures, it is not without legal risks. Indeed, in this type of structure, an employee is subject to a dual hierarchy: their internal hierarchy, represented by the permanent manager they usually report to, and the project hierarchy to which they are assigned, represented by a project manager. The matrix organization thus creates hierarchical links between employees of various legally independent companies within the same group.

French courts first drew the legal consequences of this organization in labor law. The status of co-employer of the subsidiary's employees was recognized for its parent company as soon as there “existed between the two legal entities not only a community of economic interests and an interdependence of management bodies, but also an absence of any clientele specific to the first company, a lack of management autonomy with respect to its personnel since an employee of the second company was necessarily seconded to perform the functions of technical director and the employees were subject in their activity to the direction and control of the second company through the management” .

More recently, the Court of Cassation addressed the criminal consequences of using a matrix organization . In this case, the legal entity prosecuted was a holding company established in France, while the offense of bribing a foreign public official was committed in Costa Rica by employees of its Costa Rican subsidiaries, under the guise of fraudulent consultancy contracts. Acquitted by the criminal court, the parent company was held accountable by the court of appeal. In its appeal, it denied that the employees of its subsidiary were its representatives and that its Risk Assessment Committee (RAC)  was an organ capable of incurring its criminal liability. Indeed, under Article 121-2 of the Criminal Code, an employee can be a representative of a company either by virtue of the powers conferred by their status or duties, or by virtue of a regular delegation of powers. For the parent company, an employee of a subsidiary could only be considered its representative if there was a delegation of powers in their favor.

In this case, however, the parent company had adopted a matrix organization by creating two virtual and cross-functional entities without legal personality, which grouped, on the one hand, business sectors (business groups) and, on the other hand, geographical areas. This matrix organization, although lacking legal personality, involved for each agent a dual hierarchy, de jure within the subsidiary that employed them, and de facto, within the matrix and cross-functional organization. The multiplication of illicit payments in different geographical areas could not, according to the courts, be solely the result of collusion between two employees, but constituted the expression of a group policy, determined by the parent company and implemented through a complex organization which, under the guise of transparency and collegiality, by providing a multitude of documents and a plurality of participants, had no other purpose than to dilute responsibilities and to allow, under an appearance of legality, the continuation of agent contracts enabling illicit payments to foreign public decision-makers crucial for the company's commercial results.

The Court of Cassation thus reiterates that it is not necessary for a delegation of authority to exist for an employee to be classified as a representative of a legal entity within the meaning of Article 121-2 of the Criminal Code. According to consistent case law, the delegation of authority is certainly a sufficient condition, but not necessary to establish representation. The absence of a legal link and delegation of authority does not exclude the liability of the parent company, which may also derive, under a pragmatic and functional approach, from the matrix organization of the group and the tasks assigned to the employees of the involved subsidiaries, granting them the status of de facto representatives. Nevertheless, the de facto representation of the subsidiary's employees was not sufficient to engage the criminal liability of the parent company. The Court indeed takes care to note that it was through the combination of the interventions of the subsidiary employees and the central RAC that the active corruption of a foreign public official was committed on behalf of the parent company.

In this case, none of the bodies provided for by law for a public limited company had intervened in the corruption pact . The Court of Cassation therefore took into account the consequences of the RAC's intervention to classify it as a body of the legal entity capable of incurring the latter's criminal liability.

In this case, the criminal liability of the parent company is primarily based on the matrix organization of the group. It must therefore alert undertakings to the necessity of measuring and anticipating the legal consequences of implementing such cross-functional organizations, notably by resorting to delegations of authority or by training the managers of subsidiaries or heads of business units or areas on the risks involved.

CA Nîmes, 16 June 2009, No 08/02221, LawLex202300013029JBJ, upholding Labor Court Aubenas, 15 April 2008.

Cass. crim., 16 June 2021, LawLex202200001378JBJ.

Central risk assessment committee, “RAC” in the ruling.

Cf. Cass. crim., 14 March 2018, No 16-82.117, LawLex202200007749JBJ, in which the “comex” (executive committe) of a large international group - an executive body where the CEO, vice-president, and general directors sit, which determines the group's strategy and to which all the group's investments are submitted for decision - was recognized as an organ whose actions could engage the criminal liability of the legal entity.

6. Definition