Corporate criminal liability under Italian law

In summary

Legislative Decree No. 231/2001 on corporate criminal liability significantly affected the practice of criminal lawyers in advising corporate entities and their strategy for criminal investigations and prosecutions. Companies can be considered liable in respect of a wide range of criminal offences committed by their managers or employees in the interest or for the benefit of the company. A company will be deemed liable for having committed an administrative offence if it has not implemented an adequate compliance programme that is able to prevent the commission of the criminal offence by its managers or employees. If the criminal offence is committed by senior managers, corporate liability can theoretically be avoided; however, the standard of proof is extremely high and almost unreachable in practice.

Discussion points

• Nature and requirements of corporate liability
• Applicable procedure
• Conditions to exclude or mitigate corporate liability
• Applicable sanctions

Referenced in this article

• Legislative Decree No. 231/2001
• Court of Cassation, United Sections, 24 April 2014, Case No. 38343
• Court of Cassation, Section VI, 11 November 2021, Case No. 23401
• Code of Criminal Procedure
• Impregilo
• Siemens AG

Fundamental principles of corporate criminal liability

As of 2001, companies can be considered criminally liable with regard to a list of criminal offences committed by their managers or employees in the interest or for the benefit of the company (Legislative Decree No. 231/2001 (Law 231)).

The list of predicate offences is constantly updated and broadened. It currently covers a wide range of business crimes, such as corruption, tax fraud and fraud against the state, market manipulation and insider trading, false accounting, money laundering, handling of stolen goods, health and safety crimes, intellectual property crimes, infringement of trademarks and environmental crimes.

A company’s liability is qualified by the law as an ‘administrative offence’ that comprises not having implemented an adequate compliance programme or internal control system that is 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 usual prosecuting authorities, in accordance with the rules regarding criminal procedures and in the light 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) must be applied.^[1]

Fundamental principles of criminal procedure

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. They are assisted by the police.

Public prosecutors are not part of the government but are 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 event to which the notice refers 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 regard to companies, although with regard to individuals they must request the dismissal to the competent judge (the judge for preliminary investigations).

The notice of crime can be generated from multiple sources, such as criminal complaints filed by injured parties; reports made by the police, other public officials or 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 investigation is six months, extendable up to a maximum of two years (and even longer if new suspects are added to the original investigation).

Once the individuals and companies under investigation receive a notice of conclusion of the investigations, they are entitled to obtain a copy of all the acts of investigation,^[2] and in the subsequent 20-day period, they have the right to request to be interviewed by the public prosecutor and to file written submissions to convince the prosecutor’s office not to request the committal for trial.

The existence of a criminal investigation is usually publicly acknowledged before the conclusion of the investigation, especially when significant acts of investigation are carried out, such as the execution of search and seizure or the issuance 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.

Conditions for excluding corporate criminal liability

Under article 5 of Law 231, companies can be considered criminally liable for not implementing an adequate compliance programme or internal control system that is effectively able to prevent criminal offences by their managers or employees that are committed in the interest or for the benefit of the company.

If the predicate criminal offence is committed by an employee, the company can avoid liability by proving that it has implemented an adequate compliance programme that is properly designed to effectively prevent the commission of that type of offence;^[3] however, if the offence is committed by senior managers, the liability of the company can be avoided only by proving that:

• the company has implemented an adequate and effective compliance programme;
• there was sufficient surveillance by the supervisory board (ODV); and
• the senior manager committed the offence by ‘fraudulently circumventing’ those corporate internal controls.^[4]

In this scenario, a crucial role is performed by the ODV, which is responsible for monitoring and continuously supervising the effectiveness and adequacy of the compliance programme or internal control system for the purpose of excluding or mitigating corporate criminal liability. In particular, to be excluded from liability or leniency, the ODV must be composed of qualified professionals and have, and effectively exercise, autonomous powers of action that are independent from those of the management (and other corporate bodies).

In practice, case law indicates that if 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 ODV were totally adequate and effective, and that the perpetrator acted by fraudulently circumventing those internal controls, is extremely high and almost unreachable.

A violation by a 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 of proving that the senior manager fraudulently circumvented the internal control system and was effectively able to mislead the other officers and bodies of the company in such a way as to prevent a perfect internal control system from detecting and impeding the violation.^[5]

In practice, the above standard is extremely difficult to meet and almost unreachable. There have been several requests and proposals for change by scholars and the business community.

Sanctions

Sanctions applicable to companies under Law 231 include fines, disqualifications and confiscation of the proceeds of crime.^[6]

Fines always apply in the event of a company’s conviction. Their financial impact does not usually exceed €3 million, and it is often lower depending on several factors, such as the type and seriousness of the offence, the degree of liability of the company, the activity carried out by the company to eliminate or reduce the consequences of the offence and prevent the commission of further offences, and the economic and patrimonial conditions of the company.^[7]

Disqualifications can include:

• suspension or revocation of government authorisations, licences or concessions;
• debarment (prohibition of entering into contracts with the public administration);
• exclusion from or revocation of government financing, contributions or subsidies; and
• 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.^[8]

Disqualifications compulsorily apply if there is a repeat of the company’s offence. A repeat offence is deemed to have occurred if the company commits an offence in the five-year period subsequent to its res judicata conviction for a previous and different offence.^[9]

Disqualifications can be particularly damaging. This is amplified by the fact that they can also be applied at a pretrial stage, during the investigations, as interim coercive measures.^[10]

The application of interim coercive measures, such as disqualifications, is ordered by the judge for preliminary investigations on request of the public prosecutor, if the following requirements are met:

• there is serious evidence of a company’s commission of an offence;
• there is a concrete risk of further offences being committed (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. If there appears to be prima facie grounds for a criminal investigation, it is advisable to react to the knowledge of those grounds 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 of 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

There is no 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); however, a certain degree of cooperation with the prosecuting authorities during the investigations and before trial can have a significant impact on reducing the pretrial 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 the 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 gave rise to the crime by adopting and implementing an adequate compliance programme that is 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.^[11]

To benefit from leniency (ie, the declaration of opening of the trial of first instance), it is generally advisable that the company adopt appropriate and effective reaction measures as soon as it becomes aware of the investigation and ensure those measures are fully executed before the deadline provided for by the law.

Under certain conditions, plea bargaining with the prosecuting authorities is recognised by Italian law, both for individuals and companies.

With regard to individuals, the plea bargain must be approved by the competent judge. The punishment agreed with the prosecution’s office cannot be more than five years’ imprisonment, and it is considered equivalent to a conviction by an express law provision.^[12] The adoption of a plea bargain entitles the offender to up to a one-third reduction of the punishment.

With regard 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 are entitled to a plea bargain.^[13] The reduction of the sanctions by up to one-third owing to a plea bargain also applies, and the reduction operates on the amount of the fine and the length of the relevant measure of disqualification.

Even if the plea bargain is considered equivalent to a conviction by an express law provision, an admission of wrongdoing is not required. In particular, according to case law, a plea bargain cannot be considered an admission of wrongdoing, but rather as an incomplete assessment of liability deriving from the decision of the defendant to renounce its challenge of the charges.

In the related civil litigation, the plea bargain is not binding on the civil judge, unlike a conviction issued after a full trial; however, it has the benefit 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

The main governing principle of the jurisdiction of Italian courts, in respect of both individuals and companies, is territoriality, according to which Italian courts have jurisdiction on all offences considered to be or to have been committed within Italian territory. This principle is subject to derogation in favour of extraterritorial jurisdiction only to a very limited extent and under stringent requirements.

The principle of territoriality is interpreted in a broad sense with a wide reach since it is sufficient that only 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 be prosecuted in Italy if at least a portion of the criminal offence committed by their managers or employees took place in Italy and all the other requirements for the company’s liability are fulfilled.

In essence, the predicate offence must have been committed in the interest or for the benefit of the foreign company by its managers or employees, and the foreign company should have failed to implement an adequate and effective compliance programme to prevent the commission of the offence.

The principle of the liability of foreign companies under the strict terms mentioned above (with a corresponding burden to adopt a compliance programme in accordance with the principles of Law 231, if the companies are conducting part of their business in Italy) is consolidated in Italian case law, ever since the landmark decision Siemens AG.^[14]

In respect of companies that have their main seat (registered office or main place of business) in Italy, including Italian subsidiaries of multinational groups, the jurisdiction of the 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;^[15] therefore, in that limited respect, the principle of territoriality is subject to derogation in favour of extraterritorial jurisdiction.

Law 231 does not provide for any express provision to regulate corporate liability in a group of companies. The most significant 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 interest or for the benefit of its subsidiary.

According to the prevailing case law, the answer is negative: a holding or parent company can be responsible under Law 231, but only if the relevant law requirements are satisfied. In particular, a manager or employee of the parent company must be involved in the commission of the predicate criminal offence, and the predicate criminal offence must have been committed in the specific interest 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.^[16]

Notes