Corporate misconduct in Italy is punishable under both criminal and administrative law.
The public prosecutor directs preliminary investigations in criminal prosecutions and issues orders to the police, who investigate.
Under the terms of the Constitution, the Public Prosecutor's Office is independent of all political influence.
The Office theoretically has no discretion as to which offences must be prosecuted: under the mandatory prosecution principle (Article 112 of the Constitution), the public prosecutor must always issue a request for indictment (request to submit the defendant to trial) if, at the end of the investigation, he or she has found sufficient evidence that a crime has been committed. In practice, the rule is disregarded: the high number of reports of criminal offences imposes a de facto selection of the cases to be dealt with by the investigating authorities, depending on the circumstances, in accordance with the principle of priority.
Some kind of jurisdictional control on the decision of the prosecutor as to which cases to dismiss, and which to prosecute, is in any case granted by the judge of the preliminary investigations, who has the final word on any request for dismissal.
When the prosecutor investigates the possible criminal liability of corporate entities, under Decree No. 231/2001 (see Section III, infra), the mandatory prosecution principle may be bypassed, since in this case there is no jurisdictional control over the prosecutor's dismissal decision, only the prosecutor's hierarchical superior may personally take any further appropriate action.
From an administrative perspective, the independent administrative authorities have specific powers relating to their individual remits. If the officials of any of the authorities discover any offences in the course of their duties, these bodies are obliged to report them to the judicial authorities.
Far-reaching powers are granted to the Italian Securities and Exchange Commission (CONSOB) under the Consolidated Law on Finance, with reference to insider trading and market-manipulation offences, and in close cooperation with the public prosecutor. Further, the latter is under an obligation to notify the president of CONSOB when a report of a criminal offence of which he or she has been made aware involves insider trading or market manipulation by listed companies, with a view to obtaining a reasoned technical opinion on the matter from this independent authority. The main powers granted to CONSOB include the right to:
a request documents from any party that may have relevant information;
b interview individuals in person;
c carry out inspections; and
d gain direct access to data contained in the Italian Central Credit Register at the Bank of Italy.
At the end of its own investigation, CONSOB may issue severe administrative sanctions for the offences of market abuse (insider trading, market manipulation), which are meant to be added to the criminal punishment (up to 12 years' imprisonment), for the same facts. In a breakthrough decision, the European Court of Human Rights has convicted Italy, considering this doubling of penalties for the same offences as contrary to the ne bis in idem principle, provided for in the European Convention of Human Rights, Section 6. Italy will likely have to rethink the entire system of ‘double track' persecution of corporate offences, both in criminal courts and before the administrative authorities, which has up to now been very typical (not only for financial crimes, but for tax crimes, and many others).
Besides the above, an increasingly important role has been attributed to the National Anti-Corruption Authority (ANAC), which has the general function of preventing corruption in public offices and now also supervises the conclusion and execution of public contracts. ANAC may also issue sanctions (disqualifications, etc.).
As regards the issue of cooperation between the company under investigation (or its employees) and the investigating body, the presumption of innocence and the right to due process of law (both of which are constitutional principles) categorically exclude any legal obligation to cooperate. However, for an appropriate choice to be made regarding cooperation, a case-by-case assessment must be made of:
a the nature of the case;
b the seriousness of the alleged conduct;
c any incriminating evidence;
d the identity and investigative approach of the public prosecutor; and
e the possible repercussions of failure to cooperate with the investigating bodies (e.g., the risk of being subject to pretrial precautionary measures).
The decision as to whether and how to cooperate typically remains part of any defence strategy, both for the individual defendant and for the corporation. In practice, the burden of the interdictory sanctions that may hit the corporation, in cases in which Legislative Decree No. 231/2001 may be applied (see Section III, infra) weakens the presumption of innocence and makes cooperation almost a default option for the corporation; considering also that, under a typical ‘carrot and stick approach', Legislative Decree No. 231/2001 provides certain incentives such as the reduction of fines and the preclusion of bans, to corporations that cooperate and bargain a plea. In such cases, prior to the initiation of trial proceedings, companies must:
a make good any damages in full;
b eliminate the harmful and dangerous consequences of the offence (or otherwise take efficacious action to this effect);
c adopt and implement organisational models capable of preventing offences of the type that were committed or eliminate the organisational shortcomings that led to the offences; and
d hand over any profits earned for confiscation.
Therefore, if a corporation is directly involved in the proceedings, a cooperative strategy must always be carefully considered.
As a matter of principle, under Italian law, private individuals and businesses have the right - but not the obligation - to report to the judicial authorities any offences that may come to their attention. With the exception of some specific cases, the decision whether to report an offence is exclusively down to each individual's sense of civic duty, and there is no provision for any benefit or incentive.
ii Internal investigations
Italian law allows investigations to be carried out by a lawyer appointed as defence counsel in a criminal proceeding by a person or a corporation, or before any proceedings are initiated. Any evidence collected in this way may be later used in any criminal proceedings.
Italian law allows the lawyer to carry out both ordinary and extraordinary inquiries. Information is collected by the lawyer from persons with relevant information, and they do not need to be accompanied by lawyers but are under an obligation to tell the truth, the violation of which is punished by the Criminal Code. The situation is different if the person to be questioned is a suspect in the proceedings, in related proceedings or for a related offence; in these cases the presence of a lawyer is mandatory. The case is also different in the event that the witness may be called upon to make self-incriminating statements, in turn risking becoming a suspect; in such cases the questioner must call a halt to the interview.
Some witnesses with specific qualifications also have the right in criminal proceedings not to answer questions when the answer would entail a violation of professional privilege. This right is only granted to professionals expressly mentioned in the Code of Criminal Procedure or under special legislation, such as lawyers.
Lawyers receive absolute protection at all stages and instances of proceedings, both with reference to attorney-client communications, and to work product. It should be borne in mind, however, that under Italian case law, in-house counsel may not be granted the same privileges as external lawyers, and their computers, e-mails, and hard-copy documents may be subject to search by investigating authorities.
Finally, internal investigations may be done internally by the staff of the establishment or by independent externals advisors. In the first case investigations are typically carried out by the internal audit service with the backing of the legal department. The advantages of this type of investigations are in term of lower costs and greater knowledge of the company, however, this type of investigations might not be capable of providing a high enough level of expertise and independence. The internal independent investigation, instead, are entrusted to independent externals advisors that support the administrative and supervisory bodies. The externals advisors certainly guarantee a better expertise and independence.
There is no general provision regarding whistle-blowing in Italy. A specific regulation regarding only public administration has been recently enacted: Article 54 bis of Legislative Decree 30 March 2001, No. 165 (introduced by Article 1, Paragraph 51 of Law No. 190 of 6 November 2012), entitled ‘Protection of public servants who report abuse', entered into force on 27 November 2012. This legal provision does not affect in any way private-sector companies.
Although this does not prevent private businesses from drawing up intra-company whistle-blowing procedures, a recent research shows that only a very limited number of major corporations have taken steps in this direction in Italy, and some of these (those listed in the United States) only because they are obliged to under the Sarbanes-Oxley Act.
In the event that employees report a criminal offence committed within a company, or on behalf of the company, it would, in any case, be difficult to initiate disciplinary proceedings aimed at dismissing them. In fact, the Italian Workers' Statute provides that employees may only be dismissed for cause, a prerequisite that would certainly not be met if they reported an offence, as has been reiterated on various occasions in court.
There are partial gaps in the protection of workers regarding other ‘minor' forms of reprimand, such as demotion, non-promotion and harassment; however, even in these cases, employees may apply to labour tribunals to seek protection (as a matter of principle, the reporting of a criminal offence is always deemed to be a legitimate interest under Italian law). In the most serious cases, the worker may also initiate a criminal prosecution (if, for example, the conduct of senior management is violent or tantamount to other acts of persecution).
Generally, Italians - and Italian companies in particular - are not inclined to report irregularities or offences, and when a report is made the preferred method is by anonymous statement, which entails immediate difficulties in identifying the parties involved.
On the other hand, even if reporting a criminal offence may entail the violation of professional secrets or even if the purpose of the whistle-blower differs from the respect of the best practices, Italian courts would likely avoid punishing a whistle-blower, if the report is accompanied by supporting evidence and a firm belief.
It is strategically inappropriate for the company to adopt a position against the whistle-blower or even more so to initiate legal action: in a recent case, a company filed a criminal report against a whistle-blower who had taken copies of e-mails denouncing misdeeds by the company's senior management outside the company; later, the company decided to withdraw the report and the case has been dropped by the prosecutor.
Recently, ANAC has presented the first report about the situation of whistle-blowing in Italy in order to make public this level of implementation. The report is based on 299 warnings sent to ANAC from September 2014 to May 2016.
The main lack concerns the protection of the whistle-blower: apart from an agreement between ANAC, Libera and Transparency International Italia (two non-governmental organisations), in Italy there is no regulation supporting whistle-blowers. For this reason, in addition to internal discredit, there is the risk that the whistle-blower could be subject to discrimination from his or her supervisors (retaliation) without adequate channel of information to the Authority that has the duty to verify the legality and the regularity of the disciplinary proceedings. Only 13 of the 32 OCSE countries adopted a full regulation about the protection of whistle-blowers.
The legal protections in place for whistle-blowers could be related to the protection of the identity of the whistle-blower or to protection against retaliatory behaviour. In Italy, the identity of the whistle-blower is protected unless the charge is founded, in whole or in part, on the complaint. In this case, during the criminal proceeding, the defendant will have access to all the prosecution's files, including the name of the whistle-blower.
i Corporate liability
Legislative Decree No. 231 of 8 June 2001 regulates the criminal responsibility of corporations with regard to offences committed by their representatives or employees. Even though the Decree provides for (formally) administrative sanctions against corporations, the underlying offence is criminal, and it is in criminal proceedings that the offence is ascertained and the sanction imposed. It is a criminal court that tries the case and the corporation will have all of the defence rights and guarantees of a defendant in a criminal trial. Moreover, this kind of provision certainly responds to the ‘Engel' criteria (specifically, the nature of the offence and severity of penalty), under which the European Court of Human Rights considers a punishment to be effectively criminal, in regard to the need to respect the provisions of the European Convention on Human Rights.
For the criminal responsibility of legal persons to apply alongside the criminal responsibility of natural persons (representatives or employees), the offence must have been committed in the interest of or for the benefit of the corporation. The exclusive benefit of the agent (or a third party) excludes corporate liability.
Article 5 of Decree No. 231/2001 states that the corporation is responsible if the criminal offence has been committed by:
a persons holding representative, administrative or managerial positions in the corporation or in any of its organisational units provided with financial and functional autonomy, or persons in charge of managing and overseeing these positions (referred to as senior managers); or
b persons placed under the direction or supervision of any person specified above (referred to as employees).
A corporation may attempt to establish its innocence by providing evidence that the internal organisation of the corporation and its policies and procedures complied with the law and were structured in such a way as to be capable of preventing crimes from being committed.
Originally intended to apply only to offences against the public administration (centred on bribery) or against the assets of the public administration (embezzlement of public money), the responsibility of corporations has been extended through additional legislation to include offences regarding, inter alia:
a public deeds or revenue stamps;
b criminal offences against individuals;
c criminal offences involving market abuse;
d bodily harm or manslaughter because of violations of health and safety regulations;
e receiving stolen goods;
f money laundering and the handling of illicit funds and assets;
h organised crime offences;
i offences against trade and industry;
j criminal offences against intellectual property;
k criminal offences against the environment;
l fraud against the state or a public body;
n forgery of money, tax stamps, credit cards and distinguishing marks of industrial products;
o corporate crimes;
p crimes of terrorism and of subversion of the democratic order;
q inducement not to make statements or to make false statements to the authority;
r employment of illegal immigrants; and
s child grooming.
One of the most recent developments has been to extend the concept of bribery from bribery of public officers to commercial bribery (bribery of managers of corporations), which is now specifically punished. If the briber acts within a corporate organisation, his or her own company may be punished as well (not the company of the bribed, which has suffered damage from the act).
Additionally, as of 1 January 2015, corporate liability has been extended to self-laundering (defined in Article 648 ter 1 of the Italian Criminal Code). Therefore, corporations may be liable if their employees, having committed or participated in committing an intentional crime, employ, replace or transfer, in financial, entrepreneurial or speculative activities, money, goods or other benefits derived from the commission of such a crime, in order to hinder the identification of their criminal origin. This new provision is likely to have a significant impact on corporations, and it compels them to promptly adjust their compliance programmes accordingly.
Alongside the criminal or administrative liability under Decree No. 231/2001, and in addition to any administrative penalties that CONSOB or other authorities may impose, a company may also incur liability under civil law if its directors or employees are held responsible under criminal law. Pursuant to Article 2049 of the Italian Civil Code, a company is strictly liable for all damages caused to third parties by its own employees, representatives or directors, even if these damages are the result of a criminal offence.
The same lawyer may defend both a company and any suspected employee, unless there is a conflict of interest between the two. Only then does the Code of Practice require the counsel to refuse to assist at least one party and not to exploit any confidential information received when defending the other. If, for example, the company's defence asserts that the offence was committed by the employee in the latter's own exclusive interest and for his or her own benefit, then obviously, according to the structure of Article 6, the two parties would require different defence counsel. When the company's defence strategy involves the defence of its staff, that defence will generally be joint or closely coordinated.
The legislative decree 231/2001 sets forth four types of penalties: monetary penalties, restrictive penalties, seizure of assets and publication of conviction. The monetary penalties are applied on the basis of units, which cannot be less than 100 and nor exceed 1,000. The amount of every unit ranges from a minimum of €258 to a maximum of €1,549, which is set at the discretion of the judge based on the severity of the crime, the economic condition of the company and the size of its assets. (For example, in the case of bribing a public officer the law indicates a range of between 100 and 800 units and the judge may decide to apply a penalty of 200 units. If the company is large, the judge may apply a value of €1,500 for each single unit and thus the total penalty would be €300,000.) The judge must also consider any activity carried out to cancel or reduce the consequences of the crime. Apart from monetary penalties, the judge, if expressly established, could also apply restrictive penalties but that would only occur under one of these two conditions: that the entity made a remarkable profit, and that the offence was committed or by a senior manager or by an employee. In the second case the penalty could be applied only if the offence was committed thanks to serious organisational deficiencies. In case of reiteration of offences, restrictive penalties can involve either fines or disqualification, such as:
a a ban on carrying out business activities;
b suspension of licences and concessions;
c a ban on dealing with public bodies;
d exclusion from or cancellation of public financing or contributions; and
e a ban on advertising goods or services.
The other two penalties are the seizure and the publication of the conviction in one or more journals and then billposting in the municipality where the entity has its main office. During an investigation, if requested by the public prosecutor, it is possible to impose a ban as a precautionary measure when there is a real possibility of further offences of the same nature being committed by the company.
iii Compliance programmes
The keystone of Decree No. 231/2001 is the partial exemption from corporate liability that comes with the adoption of an effective and efficient organisational model, capable of preventing predictable offences, established by the ‘gap analysis'.
If the supposed offence was committed by senior management, the burden is on the company to prove that the persons committed the offence by fraudulently evading the effective and appropriate organisation model and the controls in place; however, if the offence was committed by a less senior employee, it is for the public prosecutor to demonstrate the failure to comply with the obligations of direction and oversight imposed on the employee.
Reparatory compliance programmes (i.e., those developed after an offence has been committed) may, on the other hand, entail a reduction in the fine, exemption from the application of bans or the suspension or revocation of precautionary prohibitive measures, or the suspension and subsequent conversion of the fines in the event that the reparatory action was carried out late.
Article 6, c.2 Decree 231/01 establishes the essential characteristics for the organisation, management and control model. The first two activities to be developed are linked to risk assessment. In particular:
a identification of potential risks;
b design of the control system: in particular, the guidelines of Confindustria establish the most important components to an effective control system as;
• a code of ethics referencing the offences considered;
• a sufficiently formalised and clear organisational system, in particular with regard to the attribution of responsibility;
• allocation of the power of authorisation in accordance with defined managerial and organisational responsibilities;
• a risk-management and control system; and
• communication and staff training.
The compliance programmes should also include specific rules of conduct for employees in the company. This code of conduct should be done after the risk assessment and the gap analysis and should establish specific procedures to regulate the decision-making process. Confindustria has also established some guidelines to comply with Decree 231/2001. In particular, the minimum contents of the compliance programme should establish that:
a the essential principle of the entity should be the respect of law in every country where the entity acts;
b every operation and transaction has to be correctly registered, authorised, verifiable, legitimated, coherent and appropriated; and
c the entity has to establish the basic principles in relation to its commercial partners.
iv Prosecution of individuals
In Italy, when the investigation or the initial criminal action is directed against a natural person who is an employee or senior manager of the company, it is generally the company that arranges an adequate professional defence for its own employee and bears the costs, given the common interest of the company and of the natural person in proving that no offence was committed.
The company and the natural person oppose one another only in a limited number of cases; this mainly occurs when the employee has caused damage to the company when committing the offence, or fraudulently evaded company procedures to commit the offence. In these situations the company will mainly be interested in dismissing or otherwise sanctioning the employee - thereby distancing itself from the employee's conduct - and then in joining the criminal proceedings as a civil claimant to obtain compensation for all damages suffered as a result of the unlawful conduct.
i Extraterritorial jurisdiction
Pursuant to Decree No. 231/2001, criminal liability also extends to criminal offences committed abroad, but only if the corporation's headquarters are located in Italy (and on the further conditions that no action has been taken by the authorities of the country where the offence was committed, and that the requirements for the criminal liability of the natural person that has committed the offence concerned are met).
Conversely, if the crime was committed in Italy by a manager or employee of a foreign company, both the perpetrator and the corporation may be pursued under Italian law despite the fact that the main offices of the company are abroad. Pursuant to the Criminal Code, any offence may be deemed to have been committed in Italy (and not abroad) even if a ‘fragment' of the action or ‘the conception of the offence' occurred in Italy. A German corporation has been tried for bribery in Italy under Decree No. 231/2001 and had to enter into a plea bargain, and many foreign corporations are already on trial or under criminal investigation in Italy (banks involved in the Parmalat bankruptcy case, other banks involved in investigations regarding derivatives sold to public entities, etc.).
Specific crimes, notably insider trading and market manipulation regarding securities traded on Italian markets, may be punished even if entirely committed abroad. Both the individuals and (under Decree 231/2001) the foreign corporation for the benefit of which the crime has been committed will be punished in Italy. Two of the three major ratings agencies, alongside some of their managers were under trial in the little southern town of Trani, for alleged market manipulation on Italian treasury bonds: the crime was supposedly committed entirely abroad.
About the specific types of conduct, in the case of an offence committed by an Italian entity abroad, according to Article 4 of Decree 231/2001, the entity could be accountable in the cases and under the conditions provided for Articles 7 to 10 of the Criminal Code. In particular, Article 7 provides that any of the following offences committed abroad are punishable under Italian law:
a offences against the state;
b offences of counterfeiting the state seal and use of the counterfeited seal;
c offences of forging money, public credit cards; and
d offences committed by public officials with abuse of authority, or violation of the duties inherent to the function or service.
ii International cooperation
The Italian legislation involving judicial assistance in criminal matters is very similar to those in other EU Member States, Italy having ratified the relevant international instruments. Under this regulation, a judicial authority that intends to carry out investigations in a foreign state may request the competent authorities of that state to implement them on its behalf, performing the acts requested and transmitting their results to the requesting country. Alongside national legislation, such matters are governed by international conventions (although bilateral treaties are much more numerous) and by the general provisions of international law, which - where present - prevail over ordinary legislation.
Extradition involves the surrender of individuals by the state in which they are located to another state that has made an appropriate request to place them on trial or to implement a conviction or other measures involving a restriction on their personal freedom. Italian authorities refuse to allow extradition of defendants abroad:
a when there are grounds to conclude they will be subject to persecution or discrimination, or other acts amounting to a violation of their fundamental rights;
b for political offences; or
c in the event that the conduct in respect of which extradition has been requested is punishable by death in the requesting state.
Within the EU, the European arrest warrant is a simplified form of extradition (implemented in Italy by Law No. 69/2005). This measure equates to a genuine judicial decision according to which the national judicial authority at which it is aimed is required to recognise the request for the surrender of a person made by the issuing judicial authority, subject to a summary control that the relevant prerequisites have been met.
The right granted to the General Prosecutor to also request the enforcing state to hand over assets covered by any seizure or confiscation order is significant for companies. Where requested by the issuing authority, the Court of Appeal may also order the seizure of assets required as evidence, provided that they are seizable.
It is worth mentioning that Italy allows extradition to a foreign requesting country even if no specific extradition treaty has been signed. The Code of Criminal Procedure provides framework rules for such non-conventional extradition, basically requesting stricter scrutiny on the grounds for the extradition, if there is serious suspicion of guilt, and a risk of discrimination, but an Interpol red alert notice, requesting the arrest of an individual in Italy, under an arrest order issued by whatever country in the world, is likely to be executed.
Finally, it is worth mentioning the United Nations Convention against Transnational Organized Crime and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (Strasbourg 1990), the latter of which provides for forms of investigative assistance in, for example:
a the collection of evidence;
b the transmission of information to another state (even where not requested);
c the adoption of common investigative techniques;
d the elimination of bank secrecy as well as provisional measures such as the freezing of bank accounts;
e the seizure of assets to ensure their retention; and
f the confiscation of the proceeds of crime.
In addition, between February 2015 and March 2015 Italy signed agreements with Switzerland, Liechtenstein and the Principality of Monaco on the exchange of information, with a view to ending bank secrecy and better pursuing Italian nationals who abscond abroad with the proceeds of tax crimes.
iii Local law considerations
Italian criminal law is based on the principle of territoriality, and, therefore, the investigative authorities may carry out any investigations against any person in Italy and use any item found in Italy as evidence, even when multiple jurisdictions are implicated. The only limit is provided for by Legislative Decree No. 29/2016: Law 29 has transposed the Framework decision 2009/948/GAI and provided in the Italian legislation the international ne bis in idem principle, concerning persons who have been judged by the jurisdiction of another Member State. The investigative power of the public prosecutor in Italy is not limited by the right to confidentiality or the right to bank secrecy, but only by the secrecy granted to specific classes of professional and official secrets. Consequently, for example, if the public prosecutor were to find some e-mails within an Italian company sent by the employees or senior management of an associate foreign company, or documentation drawn up by foreign companies that is potentially useful in a case against Italian persons, there would be no limitation on their use.
On the other hand, should it prove necessary for the public prosecutor to obtain evidence abroad, letters rogatory - amounting to a request where one state asks another to carry out specific acts (communications, notifications or the acquisition of evidence) - are essential instruments.
V YEAR IN REVIEW
The major bankruptcies that have shaken Italy in recent years (and above all, those of the two major food conglomerates Parmalat and Cirio) have involved criminal offences; the bankruptcies were the result of actions to plunder corporate resources carried out by senior management, and the crises that exposed them were primarily market related.
Italian capitalism is still mainly based on the control of listed companies by families or small groups of connected individuals (hence the description ‘relationship capitalism', as opposed to the model of the public company, which is very rare in Italy). In the Parmalat and Cirio cases both companies were catastrophically in debt and the controlling shareholders used fraudulent accounting so as not to lose control of their respective companies, relying heavily on the issue of bonds that they were not able to honour. In the current ongoing trials, prosecutors are also arguing that this was only possible with the complicity of the national and international banks.
Other major scandals, such as those that broke in 2005 (the attempted banking takeovers of the Antonveneta bank by Fiorani and the Banca Popolare di Lodi (BPL), and of the Banca Nazionale del Lavoro (BNL) by Consorte and Unipol) or the more recent case of market manipulation involving the insurance company Fonsai, can be distinguished from Cirio and Parmalat as there was no subsequent corporate collapse. These cases, however, were also characterised by an excess of power in the company leadership, which exploited the companies to their own ends.
All of these cases have one common denominator: the failure of the ‘gatekeepers'. While in the United States, Enron dragged down Arthur Andersen with it, in Italy Grant Thornton and Deloitte & Touche - two other major auditing firms - were directly involved in the criminal trials for bankruptcy and insider trading relating to the Parmalat affair.
From a criminal law point of view, the public authorities have emerged relatively unscathed from recent major scandals. It is, however, sufficient to read the reports of the hearings by CONSOB commissioners in the trial for insider trading in Parmalat stock to appreciate how, leaving aside any questions of criminal liability, CONSOB's reputation suffered a heavy blow. Its chairman, who was a witness in court, had to admit that the first request for clarifications sent by CONSOB to Parmalat was made on 9 July 2003, following an article in the newspaper La Repubblica raising doubts over the company's actual level of indebtedness; had the article not appeared, CONSOB would probably not have initiated any investigation at that point, as it would not have independently ascertained the level of Parmalat's financial difficulties.
The Bank of Italy was hit by the scandal following the attempted takeover of Banca Antonveneta by BPL; the former governor has been convicted for market manipulation in collusion with the then-managing director of BPL. As an institution, the Bank of Italy has emerged stronger from this affair, as the trial has highlighted how officials within the bank worked with the utmost honesty and competence, and were capable of withstanding pressure from the governor of the Bank of Italy, who subsequently resigned as a result of the scandal.
In the above-mentioned Fonsai case - regarding market manipulation and false accounting by the former managers and shareholders of an insurance company - the former head of the Italian Insurance Supervisory Authority was charged with bribery.
This simple point goes to the heart of the system: if the gatekeepers fail, if internal and external auditors are not able to guarantee a minimal level of truth in the company accounts, and if the highest national oversight and control authorities are not able (in the best-case scenario) or not willing (in the worst) to exercise effective control, nothing will prevent the worst behaviour by company shareholders.
Between 2012 and 2017, a significant number of cases of market manipulation came under criminal investigation. Since this crime may be punished even if committed entirely abroad, an Italian public prosecutor could investigate market manipulation allegedly committed by rating agencies, or by international banks, which affected securities traded on the Italian market.
Noteworthy is the recent trend of criminal proceedings that concern some of the most important banks for financial and bankruptcy law crimes. MPS (Monte dei Paschi di Siena) is currently involved in a trial before the Court of Milan for the crimes of market manipulation, obstruction to the functions of the public supervisory authorities and false accounting. Other important banks are, furthermore, involved in criminal proceedings for the crime of bankruptcy: the Banca MB, Banca Etruria and Banca Carife (Cassa di Risparmio di Ferrara) cases are just a few of the most important proceedings.
VI CONCLUSIONS AND OUTLOOK
The legal system's reaction to these financial crises has been left in the first instance to criminal law, with trials that have now been ongoing for years. But can criminal law alone cope with this situation and can it prevent further crises from occurring again?
However necessary, criminal law is inherently subsidiary. Given the problem, in the case of Italy, of the inherent tendency of major economic players towards opportunistic behaviour to the detriment of the market, the solution can never, by definition, be left to criminal law alone; it must be integrated into the framework of a comprehensive system of rules.
The first point of order must involve either private law or administrative law alongside some pre-legal regulations such as reputational rules, codes of practice and ethical standards.
This is merely a single aspect of a much more complex picture. To prevent opportunistic behaviour by major corporations to the detriment of the market, one possible solution is to put specific gatekeepers on guard, to use a term used by American scholars. Root-and-branch reforms are necessary, not only of criminal law, but also of civil and administrative law. Under such reforms, the role of the gatekeepers - starting with the statutory auditors, the external auditors, and the oversight and control authorities - must be well defined and carried out prior to the initiation of criminal investigations by public prosecutors.
Moreover, their powers of inquiry must be adequately formulated so as to make it possible for the oversight authorities to hear the alarm bells ringing in a timely fashion.
1 Mario Zanchetti is a founding partner of Studio Legale Pulitanò-Zanchetti.
2 The most important of these for companies include the Bank of Italy, the Italian Securities and Exchange Commission (CONSOB), the Italian Insurance Supervisory Authority (IVASS, the Italian insurance regulator since 1 January 2013, replacing the former authority ISVAP), the Italian Competition Authority (Antitrust) and the Italian Data Protection Authority.
3 Legislative Decree No. 58 of 24 February 1998.
4 Grande Stevens and Others v. Italy, 4 March 2014.
5 For example, in cases involving the receipt of property resulting from the commission of a criminal offence, the notification of the planting of explosives at the company's location or the theft of weapons or explosives, businesses are obliged to self-report.
6 There is no obligation of disclosure: therefore the investigating lawyer may well decide not to submit to authorities any evidence collected.
7 Article 6(2) Letter D of Legislative Decree No. 231/2001 imposes the duty to inform the compliance officer, concerning organisational model; Article 2408 of the Civil Code imposes the duty to inform the audit board to the shareholders, concerning every improper behaviour; Article 149 of Legislative Decree No. 58/1998 imposes on the audit board the duty of surveillance on the internal control system adequacy.
8 It is useful to draw attention to inherent provisions in the Italian legal system: Law No. 190 of 6 December 2012 introduced rules for the prevention and suppression of corruption and illegality in the public administration, among which, a provision introducing whistle-blowing protection for public servants who report abusive or illegal conduct. According to Article 54 bis of Legislative Decree 30 March 2001, No. 165 (introduced by Article 1, Paragraph 51 of Law No. 190 of 6 December 2012): ‘except in cases of liability for the crimes of slander or libel […], the public employee (whistle-blower) who reports (denounce) to a court or the Court of Auditors, or who reports to the direct supervisor illegal conduct of which he or she has knowledge by reason of the employment relationship, cannot be sanctioned, dismissed or subjected to a discriminatory measure'. Only the Court of Auditors, ordinary courts or the hierarchical superior are entitled to receive the report and the law does not specify the order between them; the implementation of a specific unit in the corporation in order to provide the reports management is not mandatory; the provision does not promote whistle-blower rewards, not does it provide the superior strict liability when he or she obstructs these reports or when he or she takes retaliatory actions.
9 Engel and others v. the Netherlands, 1976, and following cases, among which, Grande Stevens and Others v. Italy, 2014.
10 The mere adoption of the model does not appear to be sufficient to preclude the corporation's responsibility. As Milan Trial Court stated, the model must have some important characteristics: a deep analysis of the corporation; the ability to find the risky areas for the different types of crimes and ways to hinder illegal acts, keeping in mind the history [re judiciary] of the company and the characteristics of the other companies that operate in the same sector. The model has to determine what moments in the companys are exposed to the risk of crimes, study specific procedures to use in those moments that allow for effective control, and use preventive controls and specific protocols to plan the company's decision making. […] It must follow the corporation's changes updating the model as soon as the risk structure evolves (Trib. Milano, Uff GIP, 9.20,2004, IVRI holding-COGEFI). In another decision, the Court of Milan stated that: ‘Effectiveness, specificity and dynamism are structural characteristics of compliance programs' (Trib. Milano, sez. XI, Giud. Riesame, Pres. Rel. Mannocci, ord. 28 October 2004, Siemens AG).
11 The Italian government nominated a review commission in order to empower the efficiency and the aim of prevention of Legislative Decree No. 231/2001.
12 Specified under Articles 7 to 10 of the Italian Criminal Code.
13 Court of Cassation No. 11442/2016.
14 See Section V, infra
15 On 30 March 2017, the court acquitted the ratings agency Standard & Poor's and five of its former and current managers of market manipulation charges relating to past downgrades of the country's sovereign debt.
16 For example, the hearing of witnesses and accused persons, precautionary seizures and the provision of evidence or documents and other items relating to the offence.
17 For example, multilateral conventions such as the European Convention on Mutual Assistance in Criminal Matters (Strasbourg 1959), the Additional Protocol to the European Convention on Mutual Assistance in Criminal Matters (Strasbourg 1978) and the Second Additional Protocol to the European Convention on Mutual Assistance in Criminal Matters (Strasbourg 2001).
18 Extradition (and other jurisdictional relations with foreign authorities) is governed by the European Convention on Mutual Assistance in Criminal Matters signed in Strasbourg on 20 April 1959, as well as by ‘other provisions of international treaties in force in respect of the state and the provisions of general international law' (Article 696 of the Italian Code of Criminal Procedure). Only if there is no international law - either treaty law or customary law - or where these are incomplete or contain gaps, will the provisions laid down by the Italian Code of Criminal Procedure apply.
19 Ratified by Italy in 2006.
20 The Parmalat case has been split into several different proceedings; the main one has been recently judged by Court of Cassation (March 2014), a judgment that resulted in the complete confirmation of the accusations. The Cirio case was judged by the Court of Rome; the Court of Appeal confirmed the decision on April 2015.
21 Both of which were judged by the Court of Cassation in 2012.
22 The Court of Turin rendered its judgment on October 2016.
23 Milan District Court, criminal proceedings 12473/04, hearing of 31 May 2006, p. 162 of the transcript.
24 The judgment became final, in the Court of Cassation in 2012.
25 As mentioned above, on 30 March 2017, the Court of Trani acquitted the ratings agency Standard & Poor's and five of its former and current managers of market manipulation charges relating to past downgrades of the country's sovereign debt.
26 10 former executives of the bank are on trial before the Court of Milan.
27 The former executive director of the bank and other former executives are currently under investigation from the office of the Public Prosecutor of Arezzo.
28 The executives of the bank are currently under investigation from the office of the Public Prosecutor of Ferrara.
29 JC Coffee, ‘Gatekeeper Failure and Reform: the Challenge of Fashioning Relevant Reforms', Columbia Law School, The Center for Law and Economic Studies, Working Paper No. 237, 2003.