The Sharks have been fined $800,000 - half of which was suspended at the time over their supplements saga.
Flanagan and the club have until the end of January to respond to a breach notice, which is when the NRL will make its final determination.
However, the Sharks will have to overturn evidence found by the NRL integrity unit that more than 50 emails were sent by Flanagan concerning retention and recruitment.
His first correspondence was sent just weeks after his suspension and continued all the way to September 2014.
The club is believed to have initiated most of the discussions, resulting in the extra $400,000 fine.
However, no other clubs officials have been punished because then-CEO Steve Noyce and then-football manager Darren Mooney are no longer NRL officials.
At the time, NRL integrity unit investigators met with both club representatives and Flanagan's manager to ensure the coach had no contact with the club.
Towards the end of his suspension in September, Flanagan sent another email to the NRL unequivocally stating he had no involvement in retention during his ban.