A relevant peculiarity of the Italian legal system to be taken into account when selecting the civil or criminal route to asset recovery is the possibility of the victim – in the event that a crime has caused damage – bringing a civil action for restitution and damages directly within the criminal proceedings, through ‘standing as civil party’ in such a criminal proceeding. This has significant advantages, including the possibility of benefiting from the actions and powers of public prosecutors (obtaining documentary and witness evidence, tracing tainted funds, etc.), and the possibility of obtaining from the criminal court (even at a pretrial stage) a criminal ‘conservative seizure’; this is the usual measure employed to protect the assets of the state or of the victim of the crime, consisting of the freezing of the defendant’s assets to prevent their dissipation (with entitlement to be satisfied with precedence on such assets in cases of conviction and confiscation).
Although funds or assets deriving from fraud (or other crime) are not typically channelled to Italy’s jurisdiction to escape recovery, money laundering legislation is very effective in the Italian system and provides powerful tools for obtaining recovery in terms of both criminal and administrative sanctions; these sanctions can lead to the freezing of tainted funds and to the seizure or tracing of relevant banking documentation (see Section II.i and Section IV.i, infra).
Significant cases of high-profile fraud, and related procedures for asset tracing and recovery, have taken place in Italy in recent years, such as the leading case concerning the collapse of the Parmalat group, which is reported on further below.
II LEGAL RIGHTS AND REMEDIES
i Civil and criminal remedies
The main cause of action in civil asset recovery cases is civil tort, defined by the law as ‘any fact intentional or negligent which causes unlawful damage to others’, and that obliges the author to pay damages.2 Often, the mentioned cause of action may concur with the one of breach of contract,3 and the two actions may also be exercised in parallel. Proprietary claims have a limited relevance in the typical scenario of fraudulent behaviours affecting money or other fungible goods.
In a civil recovery action, the typical remedy is restitution (where possible) and damages.
The civil action for damages ordinarily has a five-year statute of limitations from the moment of the tort, but if the act also represents a criminal offence, and the statute of limitations for the criminal offence is longer, then the longer criminal statute of limitations period applies.4 In addition, if the civil action is brought during the longer criminal statute of limitations period, this qualifies as an interruption of the civil statute of limitations, and the original five years provided for by civil law recommences running from the moment in which the decision on the criminal proceeding becomes final.
In the course of the civil trial, the court, at the request of the party, can order a third party (including law enforcement and regulatory agencies) to produce documents or other things that it considers necessary to decide the case.5 However, a party cannot request the court to order a third party to disclose a certain document possessed by it, unless there is no way for the party to obtain it directly.
Discovery as known in common law jurisdictions is not provided for by the Italian legal system: accordingly, the parties have no duty of disclosure unless the court so orders.
According to the main legal principle regarding the burden of proof, anyone who claims a certain right or entitlement has to prove the underlying facts and the grounds for it; in turn, anyone who objects to the aforesaid right or entitlement has to prove the facts on which the objection is based.6 For the taking of evidence (interrogatories, testimonies, technical expertise, etc.), see Section III.ii, infra.
A summary proceeding has recently been introduced in the Italian system by Law No. 69/2009.7 This route can be selected by the claimant in the event the dispute falls under the jurisdiction of a single judge (this covers a wide range of actions) and not of a panel of judges. The proceeding is identical to the ordinary one for the first stage – the filing of the writ of summons by the claimant and the first written response by the respondent – but it is much more concise during the stage of the taking of evidence. If, however, the judge evaluates that the proceeding requires an ordinary taking of evidence and declares so by a non-appealable order, the proceeding continues in accordance with the ordinary rules.
Another type of summary proceeding is represented by the ‘injunction proceeding’,8 which can be selected by creditors of a cash amount of money or of a determined quantity of fungible goods who have written evidence of it. If proper evidence is provided, the judge issues ex parte an order of injunction to the debtor to pay or deliver the relevant goods within a certain deadline (usually 40 days). Within the same deadline, the debtor is entitled to challenge the injunction, in which case the proceeding will continue in a fully adversarial way in accordance with the ordinary rules. In the absence of such a challenge, and in cases of non-compliance with the injunction, the procedure for its enforcement can start.
As explained above, the most effective route to trace and recover assets is often the criminal one, because of the possibility of benefiting from the actions and powers of public prosecutors (for obtaining documentary and witness evidence, tracing tainted funds, etc.), and to obtain a court order granting the freezing of the defendant’s assets to prevent their dissipation (with entitlement to be satisfied with precedence on such assets in cases of conviction and confiscation).
Public prosecutors are responsible for the investigation and prosecution of all criminal offences, and in that context they also identify and trace related proceeds of crime, and request their freezing and later confiscation by the competent judge or court. Public prosecutors are not part of the government but are professional magistrates, and their duty to bring criminal prosecutions is compulsory, not discretionary (unless they find that no crime has been committed and request dismissal from a competent judge).
The positive effects of the victim bringing a civil action for restitution and damages directly within criminal proceedings through ‘standing as civil party’ in such a criminal proceeding can be maximised by using the statute of the money laundering criminal offence, provided for by Article 648 bis of the Criminal Code. This statute punishes with imprisonment from four to 12 years anybody who, with knowledge and intent, substitutes or transfers money, goods or other things of value deriving from an intentional crime, or carries out, in relation to that benefit, any transactions in such a way as to obstruct the identification of its criminal provenance.
In addition to the extremely severe prison sentence mentioned above, the law provides for the compulsory confiscation of the relevant money or goods in the event of conviction (and the related possibility of freezing assets at a pretrial stage).
Furthermore, because they provide the possibility of the competent Italian body (the Financial Intelligence Unit) imposing the suspension of ‘suspicious transactions’ on financial intermediaries, the administrative provisions on money laundering can also assist victims’ efforts to trace assets and prevent their dissipation.
This is consolidated by Italian case law in that confiscation applies not only to the proceeds directly and immediately deriving from crime, but also to any other property acquired by the offender through the investment of such unlawful proceeds.9 However, the burden to prove rigorously all the transfers and modifications deriving from the original proceeds of crime lies on the public prosecutor.
With regard to confiscating property acquired by a third party or close relatives, the general principle, with a few exemptions, is that confiscation does not take place when a ‘person extraneous to the crime’ (a third party in good faith) has ownership of the items potentially subject to confiscation: in such a case, the items should be handed over to the third party. However, Italian case law has consolidated the adoption of a very strict notion of a ‘person extraneous to the crime’, according to which any subject who has, through his or her conduct, made the commission of the crime easier, cannot be considered ‘extraneous’ to the crime, and – although not criminally liable – is not entitled to prevent confiscation or obtain the restitution of the relevant items. In particular, according to case law, the only subject who can be considered extraneous to the crime is the subject who did not have any kind of link – direct or indirect, due to a lack of vigilance or other causes attributable to negligence – with the commission of the crime.10
In accordance with these principles, only in very limited situations has case law maintained that close relatives could be considered persons extraneous to the crime, and as such had title to prevent confiscation.
The law expressly provides that criminal conservative seizure is converted into garnishment when the judgment convicting the defendant to pay civil damages to the ‘civil party’ becomes final.11 In addition, the law provides that the forced enforcement on the assets seized takes place in accordance with the provisions of the Code of Civil Procedure, and that the money deriving from the sale of these assets is firstly paid to the civil party under title of damages and to refund its costs for the proceeding, and only subsequently is it used for the fines, costs of the proceeding and any other amount to be paid by the defendant to the state.12
In the event that the victim of the crime does not request standing as civil party in the frame of the criminal proceeding, it can in any case claim ownership of the assets subject to confiscation by intervening before the court of execution of the confiscation (as a third party in good faith or person extraneous to the crime). If a dispute arises about the ownership of the assets to be confiscated, the court of execution shall remit the case to the civil court of first instance to determine legitimate ownership.
Finally, from a practical point of view, it is more fruitful for a defrauded party to obtain information and evidence from law enforcement and regulatory agencies for use in civil proceedings by filing a criminal complaint, and at the end of the criminal investigations to request from the public prosecutor access to the ‘public prosecutor file’ (containing all acts carried out and evidence gathered by the public prosecutor in the course of the investigations, including the information and documentation mentioned above). Following case law, such a request is usually granted.
ii Defences to fraud claims
The most common and effective defences to fraud claims are:
- a lack of jurisdiction (see Section V.i, infra);
- b elapsing of the statute of limitations for the relevant civil tort or criminal offence (as mentioned in Section II.i, supra, the civil action for damages ordinarily has a statute of limitations period of five years from the moment of the tort; however, if the fact also represents a criminal offence, and the statute of limitations for the criminal offence is longer, then the longer period applies); and
- c acquisition of the assets by a third party in good faith (although Italian case law has adopted a very strict interpretation of this point; see above).
III SEIZURE AND EVIDENCE
i Securing assets and proceeds
To prevent the dissipation of assets by the suspects in a fraud (as in any other circumstances where there is a material risk of dissipation), Italian law provides for conservative seizure, which can be requested by the claimant and ordered by the court on the suspects’ assets even at the pretrial stage.13
In terms of procedure, the seizure order can be issued ex parte where knowledge by the target could prejudice the successful execution of the order; in such cases, a hearing is subsequently fixed within a maximum of 15 days, at which the target is entitled to raise his or her defence and the order is subject to confirmation, amendment or revocation by the court. Otherwise, the court decides on an application for conservative seizure after a hearing at which all relevant parties are entitled to make their representations.14
The subject of the seizure order can be moveable goods or real estate or rights existing towards third persons. The order is not usually issued in relation to specific assets to be seized but with the indication of a maximum amount to be subject to seizure, with the consequence that the claimant will have to trace the assets on which to carry out the enforcement of the order.
As far as the substantive requirements for conservative seizure are concerned, they are represented by the fumus boni iuris and periculum in mora. The first is a prima facie evidence of the existence of the right that the seizure order is aimed at protecting; the second is the serious and concrete risk that delay could compromise the satisfaction of the right.
Conservative seizure is instrumental to a full trial on the merits, aimed at assessing the existence of the right claimed, after which a sentence could then be enforced by targeting the assets subject to conservative seizure. However, conservative seizure can also be granted during the trial stage and after a judgment on the merits, on condition that the aforementioned requirements are fulfilled.
The following interim measures are provided for by the Italian criminal system:
- a ‘preventive seizure’,15 which is the measure typically aimed at freezing the proceeds of crime (and the instrumentalities of crime) in view of a future confiscation (following the issue of the final conviction sentence);
- b ‘evidentiary seizure’,16 which is the measure typically aimed at collecting the evidence necessary to prove the commission of a certain crime; and
- c conservative seizure,17 which is the measure typically aimed at protecting and restoring the assets of the state, or of the victim of the crime, by freezing the assets of the defendant to prevent their dissipation (in substantive analogy with the conservative seizure provided for civil purposes).
Preventive seizure and conservative seizure can only be ordered by a judge or court, on application by the public prosecutor and, in the case of conservative seizure, also by the victim or civil party.
There are specific provisions for the practical modalities of execution of preventive seizure in relation to targeted assets. In particular, preventive seizure is executed:18
- a on moveable goods and assets, according to the civil procedure for garnishment;
- b on real estate and registered moveable goods, through the entry of the seizure in the relevant registers;
- c on the assets of a company or enterprise, through the entry of the seizure in the register of enterprises and, where necessary, through appointing a special receiver; and
- d on shares and quotas of companies, through the entry of the seizure in the company’s books and in the register of enterprises.
ii Obtaining evidence
The taking of evidence (interrogatories, testimonies, technical expertise, etc.) is carried out within the trial and is governed by the court mainly on request of the parties. With regard to documentary evidence, the parties may produce all the documents that, from their perspective, prove the grounds of their claim. With regard to oral evidence, by contrast, previous court authorisation is required.
With a few exceptions, the court can freely evaluate any evidence at its discretion,19 but has to provide the reasons for the evaluation in the written grounds of the judgment. The decision of the court has to be based on the evidence submitted by the parties and, in addition, on the facts not specifically challenged and on the factual notions of common knowledge.20
Where a defendant fails to respond to a writ of summons within the deadlines stipulated by the law, a ‘default of appearance’ is declared by the competent court. This does not mean an automatic adjudication of the case in favour of the claimant, but simply that the decision of the court will be based only on the evidence provided by the claimant (with no objections from the defendant).
Unlike in criminal proceedings, defendants in civil proceedings do not have a right to silence. If the formal interrogatory of a defendant has been requested by the claimant and granted by the court, in relation to a detailed list of relevant circumstances, and the defendant does not attend or refuses to answer without justified grounds, the court, having evaluated all the other evidence, can consider the claimant’s account of the relevant circumstances confirmed.21
With respect to the taking of evidence in a criminal trial, a crucial role is played by the oral evidence given by public prosecutor and defence witnesses before the court. In this regard, the main theoretical principle governing the taking of evidence is that of ‘fair trial’, provided for by Article 111 of the Constitution, according to which the trial must establish parity between the positions of the prosecution and the defence before an impartial judge with third-party status, it must be of a reasonable duration and, in that context, the defendant must have the possibility of defending and examining the prosecution witnesses who have made statements against him or her. Documentary evidence also has to be authorised by the court.
IV FRAUD IN SPECIFIC CONTEXTS
i Banking and money laundering
As explained above (see Sections I and II, supra), money laundering legislation is very effective in the Italian system and is a powerful recovery tool.
The statute on the criminal offence of money laundering22 is particularly effective (see Section II.i, supra) and provides for the compulsory confiscation of the relevant money or goods in the event of conviction, and for the related possibility of freezing assets at a pre-trial stage.
In addition to the above, the administrative provisions on anti-money laundering, contained in Legislative Decree No. 90 of 25 May 2017 (Decree No. 90), which implemented the Fourth Anti-Money Laundering Directive in Italy,23 can also be very effective.
In essence, this legislation imposes on relevant subject categories (financial intermediaries, professionals, etc.) certain anti-money laundering obligations, the most significant of which are the following:
- a customer due-diligence obligations, mainly consisting of the following activities:
• identifying the customer, and verifying the customer’s identity on the basis of documents, data or information obtained from a reliable and independent source;
• identifying and verifying the identity of the beneficial owner;
• obtaining information on the purpose and the intended nature of the business relationship or professional service; and
• conducting of ongoing monitoring in the course of the business relationship or professional service;
- b record-keeping obligations; and
- c reporting obligations: according to Articles 35–42 of Decree No. 90, the ‘relevant subjects’ have to disclose to the competent authority (the Financial Intelligence Unit) ‘suspicious transactions’ relating to money laundering and terrorist financing. Failure to disclose a suspicious transaction does not amount to a criminal offence, but is penalised by the imposition of fines and other administrative sanctions.24 The Financial Intelligence Unit can impose the suspension of the relevant suspicious transactions on financial intermediaries.
It can be seen from the foregoing that the administrative anti-money laundering legislation represents an additional and effective tool to support victims’ efforts to trace, recover and prevent the dissipation of defrauded assets.
Insolvency typically results from a fraud of significant dimensions, in which company assets are diverted from their ordinary purpose (the carrying on of business activity) and misappropriated for the personal interests of the company managers or shareholders.
Many examples are found in the Italian case law of recent years. The most significant, for its magnitude and impact on the related aspects of asset tracing and recovery, is the collapse in 2003 of the Parmalat group, in relation to which many criminal and civil proceedings are still pending in Italy, and will continue in future years.
After the adjudication of bankruptcy of the group’s various companies, either the appointed commissioner of the group, or the thousands of shareholders and bondholders whose investments had suddenly dramatically decreased, brought a civil action for damages within the criminal proceedings by standing as civil party against the various defendants (Parmalat’s managers and auditors, as well many foreign banks and their officers, which allegedly continued to provide finance to the group although aware of the perilous state of its finances, to obtain fees allegedly higher than the market standard).
Furthermore, many actions against the same defendants were lodged in the civil arena by the same commissioner of the Parmalat group and the relevant shareholders and bondholders to obtain recovery of the original investments and related damages.
As most of these criminal and civil proceedings are still pending, the Parmalat case represents an ideal case study for understanding the Italian system of asset tracing and recovery, and in particular the peculiar interplay that exists between criminal and civil actions.
The role of arbitration in connection with fraud and asset recovery is very limited in the Italian context.
iv Effect of fraud on evidentiary rules and legal privilege
As far as legal privilege is concerned, public prosecutors theoretically do not have the power to seize, or request the production of, documents that are subject to legal professional privilege (i.e., correspondence between the suspect and his or her defence lawyer, or documents relating to the suspect’s criminal defence) unless such documents represent the ‘elements of the crime’.25 In practice, however, protection granted by legal professional privilege is more effective at trial – to prevent the use of documents covered by privilege as evidence – than at the investigative stage (when documents covered by privilege are often seized).
In any case, documentation or communications from in-house counsel are not covered by legal professional privilege. Furthermore, in the event of criminal investigation, Italy’s labour law does not protect personal data and documents of employees from search and seizure.
Fraud allegations, and related procedures for asset tracing and recovery, do not modify the above conditions regarding legal privilege nor those regarding evidentiary rules (see Section III.ii, supra).
V INTERNATIONAL ASPECTS
i Conflict of law and choice of law in fraud claims
The relevant criteria for the jurisdiction of Italian civil courts are provided for by Law No. 218 of 31 May 1995 (Law on Private International Law). According to Article 3, Italian jurisdiction exists when the defendant is domiciled or resident in Italy, or when he or she has a representative authorised to stand in trial. Additionally, Article 3 provides that Italian jurisdiction also exists when the criteria laid down by the Convention of Brussels of 27 September 1968 are met.
With respect to interim measures, Article 10 of the Law on Private International Law provides that Italian jurisdiction exists when the interim measure should be executed in Italy or when the Italian court has jurisdiction on the merits of the case.
The lack of jurisdiction should be objected to by the defendant in his or her first brief of defence, to be filed at least 20 days before the first hearing. When this condition is met, the lack of jurisdiction can then be assessed at every stage and instance of the proceeding.26 In relation to proceedings in absentia, or when Italian jurisdiction is excluded by international provisions or by the fact that the action concerns real property located abroad, the lack of jurisdiction can be assessed ex officio by the court.
ii Collection of evidence in support of proceedings abroad
The most relevant provisions are those of EC legislation (with respect to EU countries) and of the international conventions signed by Italy, while Italian domestic law ordinarily applies only to supplement and regulate the aspects not regulated by this legislation.
The most relevant domestic provision in this respect is Article 69 of the Law on Private International Law, which states:
- a the judgments and the orders of foreign judges concerning examination of witnesses, technical assessments, swearing or other means of evidence to be taken in Italy are executed by decree of the court of appeal of the place where such acts have to be taken;
- b if the request is made by the judge itself, the request has to be made through diplomatic channels;
- c the court decides in chambers and, in the event it grants the execution, sends the acts to the competent judge;
- d the taking of evidence or the execution of other evidentiary acts not provided for by Italian law can be ordered on condition that they do not conflict with the principles of the Italian system; and
- e the taking of evidence or the execution requested is regulated by Italian law, but the forms expressly requested by the foreign authority are complied with on condition that they do not conflict with the principles of the Italian system.
iii Seizure of assets or proceeds of fraud in support of the victim of fraud
The procedure is explained, from a civil and criminal standpoint, in Section III.i, supra.
iv Enforcement of judgments granted abroad in relation to fraud claims
As with the collection of evidence, the most relevant provisions are those of EC legislation and of the international conventions signed by Italy; ordinarily, Italian domestic law only supplements and regulates aspects not regulated by this legislation.
With regard to EU countries (except Denmark), the enforcement of foreign judgments is governed by EC Regulation No. 44/2001, the basic principle of which is that the procedure for making a judgment given in one Member State enforceable in another must be as efficient and rapid as possible. As a consequence, the declaration that a judgment is enforceable is issued virtually automatically by the court of the requested state (for Italy, the court of appeal of the place of execution) after purely formal checks of the documentation supplied.27 Within that framework, however, in an adversarial procedure in which the defendant considers one of the grounds for non-enforcement to be present, he or she is entitled to appeal against the declaration of enforceability.
In addition, EC Regulation No. 805/2004, provides for the abolition of exequatur, and the creation of a European enforcement order, for ‘uncontested claims’ (namely all situations in which a creditor, given the verified absence of any dispute by the debtor as to the nature or extent of a pecuniary claim, has obtained either a court decision against that debtor or an enforceable document that requires the debtor’s express consent, such as a court settlement or an authentic instrument). According to EC Regulation No. 805/2004, such a procedure offers ‘significant advantages’ as compared with the exequatur procedure provided for by EC Regulation No. 44/2001, ‘in that there is no need for approval by the judiciary in a second Member State with the delays and expenses that this entails’.
As far as non-EU countries are concerned, the enforcement of foreign judgments is dealt with by a number of bilateral treaties signed by Italy, which regulate the related requirements. In the absence of an applicable treaty, and to supplement EC and international legislation where necessary, Italian domestic law applies, the main provisions of which are those laid down by Articles 64 and 67 of the Law on Private International Law.
In particular, Article 67 provides that an Italian civil proceeding aimed at the formal recognition of the foreign judgment before the Court of Appeal of the place of execution is necessary only in the event of a challenge to the recognition, or of a forced enforcement of the foreign judgment being required.
In contrast, if there is no challenge to the recognition or no enforcement is required, foreign judgments are recognised in the Italian legal system without need for a specific civil proceeding, on condition that the following requirements are fulfilled (Article 64):
- a the judgment was issued by a judge who had jurisdiction according to the principles on jurisdiction of the Italian legal system;
- b the writ of summons was brought to the knowledge of the defendant according to the procedural rules of the lex fori, and the defendant’s fundamental rights of defence were not breached;
- c the parties had regular standing in trial according to the lex fori, or ‘default of appearance’ was declared in accordance with that law;
- d the judgment has become res judicata according to the lex fori;
- e the judgment does not conflict with another judgment issued by an Italian judge that has become res judicata;
- f there is no pending proceeding before an Italian judge on the same subject and between the same parties that started prior to the foreign proceeding; and
- g the judgment does not produce effects contrary to Italian public order.
v Fraud as a defence to enforcement of judgments granted abroad
The defence should be raised by challenging the recognition of the foreign judgment, in accordance with the procedure explained above (see Section V.iv, supra). However, in most situations such a defence will not stop the recognition and enforcement of the foreign judgment, but only create a related cause of action for the defrauded party against the fraudster.
VI CURRENT DEVELOPMENTS
As explained above (see Section IV.ii, supra), the Parmalat case is an ideal case study for an understanding of the Italian system of asset tracing and recovery, and in particular the interplay between criminal and civil actions. The evolution and outcomes of the many criminal and civil proceedings generated by the collapse of the Parmalat group that are still pending will forge case law for years to come, consolidating the most authoritative courts’ interpretation in relation to issues of fraud, abuse of powers by company managers and shareholders, and asset tracing and recovery, in both the criminal and civil arenas at domestic and international level.
New cases of alleged significant fraud committed by company managers or shareholders continue to arise, such as that of the bank Monte dei Paschi di Siena and of the insurance company Fondiaria-Sai. Criminal and civil proceedings are currently pending in relation to these cases in an effort to identify and prosecute the individuals and entities responsible for criminal violations, and to trace and recover the related assets subject to misappropriation. The development of these cases will also have a significant impact in determining the concrete features of the Italian system of asset tracing and recovery.
1 Roberto Pisano is managing partner, Valeria Acca is associate and Chiara Cimino is counsel at Studio Legale Pisano.
2 Article 2043 of the Civil Code.
3 Article 1218 et seq. of the Civil Code.
4 Article 2947 of the Civil Code.
5 Article 210 et seq. of the Code of Civil Procedure.
6 Article 2697 of the Civil Code.
7 Article 702 bis et seq. of the Code of Civil Procedure.
8 Article 633 et seq. of the Code of Civil Procedure.
9 Court of Cassation, Unified Section, No. 10,280 of 25 October 2007.
10 Court of Cassation, No. 16,405 of 21 April 2008.
11 Article 320, Paragraph 1.
12 Article 320, Paragraph 2.
13 Article 669 bis et seq. and Article 671 et seq. of the Code of Civil Procedure.
14 Article 669 sexies.
15 Article 321 et seq. of the Code of Criminal Procedure.
16 Article 253 et seq. of the Code of Criminal Procedure.
17 Article 316 et seq. of the Code of Criminal Procedure.
18 Articles 104 and 104 bis of the implementing legislation of the Code of Criminal Procedure.
19 Article 116 of the Code of Civil Procedure.
20 Article 115 of the Code of Civil Procedure.
21 Articles 230–232 of the Code of Civil Procedure.
22 Article 648 bis of the Criminal Code.
23 Directive 2015/849/EU.
24 Articles 58–61 of Decree No. 90.
25 Article 103 of the Code of Criminal Procedure.
26 Articles 11 and 4 of the Law on Private International Law.
27 Article 33 et seq.