Fundamental principles of corporate criminal liability
According to Italian law, as of 2001, companies can be considered criminally liable with respect to a list of criminal offences committed by their managers or employees in the interests or for the benefit of the company (Legislative Decree No. 231/2001 (Law 231)).
The list of predicate offences is constantly updated and broadened, and it currently covers a wide range of business crimes (such as corruption, fraud against the state, market manipulation and insider trading, false accounting, money laundering, handling stolen goods, health and safety crimes, intellectual property crimes, infringement of trademarks, and environmental crimes), with the exception of tax crimes.
A company’s liability is qualified by the law as an ‘administrative offence’, consisting of not having implemented an adequate compliance programme or internal control system able to prevent the commission of the criminal offence by its managers or employees. However, the competence for the investigation and prosecution of a company’s offences lies with the ordinary prosecuting authorities, in accordance with the rules of criminal procedures and in the frame of criminal proceedings subject to the jurisdiction of criminal courts, which are usually joined with the criminal proceedings against the managers or employees who committed the predicate offence.
Case law on this is consolidated in the sense that the corporate liability has the nature of criminal liability, with the consequence that all related principles and guarantees provided for by criminal law (ie, personality of criminal liability) have to be applied (Court of Cassation, United Sections, 24 April 2014, No. 38343).
Fundamental principles of criminal procedure applicable to individuals and companies
In the Italian legal system public prosecutors are responsible for the investigation and prosecution of all criminal offences, including business crimes, of both individuals and companies, and they are assisted by police forces.
Public prosecutors are not part of the government, but professional magistrates such as court judges, and their decision to bring criminal prosecutions is compulsory, not discretionary. This means that when they acquire or receive a ‘notice of crime’ – a notice regarding specific facts potentially constituting a crime – they have a duty to open formal criminal proceedings (by immediately registering the notice in a special register) and start an investigation. Subsequently, if they assess that an offence was committed by certain individuals or companies, they have a duty to bring a criminal prosecution by requesting the committal for trial of the targets.
The investigation does not start if the notice is clearly unable to constitute a criminal offence (including a company’s offence). In any case, where public prosecutors assess that the ‘notice of crime’ is ungrounded, they have the power to directly dismiss the case with respect to companies, although with regard to individuals they have to request the dismissal to the competent judge (the Judge for the Preliminary Investigations).
The ‘notice of crime’ can be generated from multiple sources, such as criminal complaints filed by injured parties; reports made by police forces or other public officials, or by the relevant enforcement agencies (eg, tax authorities or the authority regulating the financial market, Consob); or other channels, such as press articles.
The acts of investigation carried out by the public prosecutors with the assistance of police officers are, with some exceptions, covered by judicial secrecy until the conclusion of the ‘preliminary investigations’. The time limit for carrying out and concluding the preliminary investigations is six months, extendable up to a maximum of two years (and even longer if new suspects are added to the original investigation), at which point the individual and companies under investigation are entitled to obtain a copy of all the acts of investigation (articles 329 and 415-bis of the Italian Code of Criminal Procedure (ICCP)); and in the subsequent 20-day period, they have the right to request to be interviewed by the public prosecutor and file written submissions in order to convince the prosecution’s office not to request the committal for trial.
The existence of a criminal investigation is usually publicly acknowledged at an earlier stage than the conclusions of the investigations, especially when peculiar acts of investigation are carried out, such as execution of search and seizure or issuing of arrest warrants. Individuals or companies that are potential targets of a criminal investigation have the right to file a formal application to the public prosecutor to be informed about their status as persons under investigation. Under specific requirements, the public prosecutor can deny disclosure for a limited period of time.
Conditions for excluding corporate criminal liability
On the basis of Law 231, companies can be considered criminally liable for the offence of not having implemented an adequate compliance programme or internal control system effectively able to prevent criminal offences by their managers or employees, with respect to a compulsory list of criminal offences committed by their managers or employees, in the interests or for the benefit of the company (article 5 of Law 231).
Where the predicate criminal offence is committed by an employee, the company can avoid liability by proving to have implemented adequate compliance programmes, properly designed to effectively prevent the commission of that type of offence (article 7).
Where the offence is committed by senior managers, however, the liability of the company can be avoided only by proving that:
- the company had implemented an adequate and effective compliance programme;
- there was sufficient surveillance by the Supervisory Board (organismo di vigilanza (ODV)); and
- the senior manager committed the offence by ‘fraudulently circumventing’ the mentioned corporate internal controls (article 6).
In this scenario, a crucial role is performed by the ODV, which has the fundamental function of monitoring and continuously supervising the effectiveness and adequacy of the compliance programme or internal control system of the company, for the purpose of excluding or mitigating the corporate criminal liability. In particular, in accordance with the Italian law and case law, it is a must – in order to obtain exclusion from liability or leniency – that the Supervisory Board comprises qualified professionals and has, and effectively exercises, autonomous powers of action independent from those of the management (and other corporate bodies).
However, it should be noted that, according to Italian case law, where the predicate criminal offence was committed by a senior manager, the standard to prove that the compliance programme in place and the surveillance by the Supervisory Board were totally adequate and effective, and that the perpetrator acted by ‘fraudulently circumventing’ the mentioned internal controls, is extremely high and almost unreachable in practice.
Indeed, a violation by the senior manager of the principles, policies and procedures imposed by the compliance programme is not sufficient to obtain an acquittal: the company has the burden to prove that an effective ‘fraud’ of the internal control system was performed by the senior manager, effectively able to mislead the other officers and bodies of the company, in such a way to prevent a perfect internal control system from detecting and impeding the violation (see Court of Cassation, section V, 18 December 2013, No. 4677, Impregilo case).
As stated, such a standard is extremely difficult to meet, and almost unreachable in practice (and in the past, several requests and proposals for change have been made by scholars and the business community).
Sanctions applicable to companies under Law 231 consist of (i) fines, (ii) disqualifications and (iii) confiscation of the proceeds of crime (article 9).
Fines always apply in the event of a company’s conviction, and their financial impact does not usually exceed €3 million, and is often lower depending on several factors (eg, type and seriousness of the offence, degree of liability of the company, activity carried out by the company to eliminate or reduce the consequences of the offence and prevent the commission of further offences, and economic and patrimonial conditions of the company (articles 10–11)).
Disqualifications can include: suspension or revocation of government authorisation, licences or concessions; debarment (prohibition of entering into contracts with the public administration); exclusion from or revocation of government financing, contributions or subsidies; and even prohibition from carrying on business activity.
Disqualifications compulsorily apply in the event of conviction of the company, where the following requirements are met:
- the criminal offence was committed by a senior manager, or by employees, and in the latter case the commission of the offence was a result of serious organisational deficiencies; and
- the company has obtained ‘significant profits’ as a result of the crime committed by its managers or employees (article 13).
In addition, disqualifications compulsorily apply in the event of reiteration of the company’s offence (reiteration occurs where the company commits an offence in the five-year period subsequent to its res iudicata conviction for a previous and different offence (article 20)).
Disqualifications can be particularly damaging, and this is amplified by the fact that they can also be applied at a pre-trial stage, during the investigations, as interim coercive measures (article 45).
The application of interim coercive measures, such as disqualifications, is ordered by the Judge for the Preliminary Investigations on request of the public prosecutor, where the following requirements are met:
- serious evidence of a company’s commission of an offence;
- there is concrete risk of commission of further offences (of the same type as the ones under investigation); and
- the company has obtained ‘significant profits’ as a result of the crime committed by its managers or employees.
An advisable strategy to reduce the risk of a company being subject to interim coercive measures is to eliminate the risk of commission of further offences. Where there appears to be prima facie grounds for criminal investigation, it is advisable to react to the knowledge of it by immediately adopting appropriate and effective reaction measures, such as: suspending working relations with and revoking the powers of the managers or employees who are alleged to have had a key role in the criminal activity; entrusting a qualified forensic firm to carry out an in-depth assessment about the allegations and the effectiveness of the company’s internal control system, with the task of identifying any possible gaps and advising on improvements; and presenting to the prosecuting and judicial authorities an effective remedial plan to be promptly implemented.
Leniency and cooperation with the authorities
The Italian system does not provide for a formal mechanism by which companies can cooperate with the investigation or disclose violations in exchange for immunity or lesser penalties (with the exception of plea bargaining, which is explained below).
However, a certain degree of cooperation with the prosecuting authorities during the investigations and before trial can have a significant impact on reducing the pre-trial and final sanctions imposed on the company.
In particular, applicable fines can be reduced by up to two-thirds, and disqualifications can be excluded if the following conditions are fulfilled before the opening of the trial of first instance is declared:
- the company has entirely compensated damage and eliminated the damaging consequences of the crime, or has taken effective actions in that respect;
- the company has eliminated the organisational deficiencies that generated the crime, by adopting and implementing an adequate compliance programme, able to prevent the commission of offences of the same type as those under investigation; and
- the company has made the profits obtained from the crime available to the authorities for confiscation (article 17).
As explained above in relation to the advisable strategy to prevent interim coercive measures, it is generally advisable to adopt appropriate and effective reaction measures as soon as the investigation is known about, and ensure they are entirely executed before the deadline provided for by the law in order to benefit from leniency (ie, the declaration of opening of the trial of first instance).
Under certain conditions, plea bargaining with prosecuting authorities is recognised by Italian law, with respect to both individuals and companies.
As far as individuals are concerned, the plea bargaining must be approved by the competent judge and the punishment agreed with the prosecution’s office cannot be more than five years’ imprisonment, and it is considered equivalent to a conviction sentence by an express law provision (article 444 ICCP). The adoption of the plea bargaining entitles the offender to a reduction of the punishment by up to one-third.
With respect to companies, a similar mechanism of plea bargaining is available in relation to less serious offences, and to predicate criminal offences for which the managers or employees under investigation would be entitled to plea bargaining (article 63 Law 231). In the context of companies, the reduction of the sanctions by up to one-third owing to the plea bargaining also applies, and the reduction operates on the amount of the fine, and on the length of the relevant measure of disqualification.
Even if the plea bargaining is considered equivalent to a conviction sentence by an express law provision, an admission of wrongdoing is not required. In particular, according to the case law, a plea bargaining cannot be considered an admission of wrongdoing, but rather as an incomplete assessment of liability, deriving from the decision of the defendant to renounce to challenge the charges.
In the related civil litigation, the plea bargaining is not binding on the civil judge as a conviction issued after a full trial would be, but it has the value of ordinary evidence that can be evaluated by the civil court.
A conviction of the company for offences under Law 231, and under certain conditions a plea bargain, may remove the ability of the company to take part in public tenders.
Jurisdiction of Italian courts, and liability under Law 231 of foreign companies and parent companies
The main governing principle of the jurisdiction of Italian courts, with respect to both individuals and companies, is territoriality, according to which Italian courts have jurisdiction on all offences considered committed within the Italian territory. This principle suffers derogation in favour of the ‘extraterritorial’ jurisdiction only to a very limited extent, and under stringent requirements.
The principle of territoriality, however, is interpreted in a broad sense and with a wide reach, because it is sufficient that a portion of the prohibited conduct took place in Italy for it to be under Italian jurisdiction. Therefore, foreign companies that have their registered seat and main place of business abroad can be subject to Law 231 and prosecuted in Italy if at least a portion of the criminal offence committed by their managers or employees took place in Italy, and, in addition, where all the other requirements for the company’s liability are fulfilled.
In essence, the predicate offence must have been committed in the interests or for the benefit of the foreign company by its managers or employees, and the foreign company should have failed to implement adequate and effective compliance programmes, as provided by Italian law, to prevent the commission of the offence.
The principle of the liability of foreign companies under the mentioned strict terms (with a corresponding burden to adopt compliance programmes in accordance with the principles of Law 231, where the companies are conducting part of their business in Italy) is consolidated in Italian case law, ever since the landmark decision Siemens AG (Milan Judge for the Preliminary Investigations, 28 April 2004; subsequently confirmed by the Court of Milan, 28 October 2004).
With respect to companies that have their main seat (registered office or main place of business) in Italy, including Italian subsidiaries of multinational groups, the jurisdiction of Italian courts applies not only with regard to offences committed in Italy, but also, under stringent conditions (including the fact that the offence is not prosecuted in the foreign state of commission), in relation to offences committed abroad (article 4, Law 231). Therefore, in that limited respect, the principle of territoriality suffers derogation in favour of the ‘extraterritorial’ jurisdiction.
Law 231 does not provide for any express provision to regulate the corporate liability in a group of companies. The most problematic issue, in particular, is whether a parent company can be held responsible under Law 231 in relation to a criminal offence committed in the immediate interests or for the benefit of its subsidiary.
According to the prevailing case law, the answer is negative: a holding or parent company can certainly be responsible under Law 231, but it is necessary to satisfy the specific law requirements previously explained. In particular, it is necessary that: (1) a manager or employee of the parent company is involved in the commission of the predicate criminal offence; and (2) such predicate criminal offence is committed in the specific interests or for the specific benefit of the parent company. In other words, it is not admissible to infer an interest or benefit for the parent company only on the basis of the group relation, because this conflicts with the fundamental principle of personality of criminal liability (Court of Cassation, Section IV, 18 January 2011, No. 24583; Court of Cassation, Section II, 27 September 2016, No. 52316; in a contrary and broader sense, however, Court of Cassation, Section III, 11 January 2018, No. 28725).