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Enforcement agencies and corporate liability
What government agencies are principally responsible for the enforcement of civil and criminal laws and regulations applicable to businesses?
Public prosecutors are responsible for the investigation and prosecution of all criminal offences, including business crime, either of individuals or of corporations. Public prosecutors are assisted by the police forces (which include the state police, the carabinieri and the financial police).
Public prosecutors are not part of the government, but are professional magistrates, and their duty to bring criminal prosecutions is compulsory and not discretionary. See question 6.
Civil and administrative enforcement
Unlawful conduct amounting to business crime can also be subject to administrative enforcement. In principle, this administrative enforcement runs parallel (and in addition) to criminal enforcement, in a system where specific ‘regulators’ have the power to assess the relevant violations and to apply the related administrative sanctions. The main regulators are the following.
National Commission for Companies and the Stock Exchange
The task of the National Commission for Companies and the Stock Exchange (Consob) is to ensure the transparency and correct functioning of the financial markets. Consob is provided with extensive powers of investigation (eg, to compel company officers to attend an interview and to provide documentation; to conduct inspections at company premises; to seize assets under specific conditions), and it can be assisted by the financial police. Where Consob assesses relevant violations, it applies administrative sanctions, mainly consisting of significant fines that, where the conduct also amounts to a criminal offence (such as in cases of insider trading and market manipulation), are applied in addition to criminal sanctions. However, the judgment of the European Court of Human Rights, in Grande Stevens v Italy, of 4 March 2014, maintained that with respect to market manipulation, under certain conditions, criminal and administrative sanctions cannot be jointly applied, because this results in a violation of the ne bis in idem principle.
The Antitrust Authority ensures free competition within the Italian market, especially by counteracting cartels and abuse of dominant positions. It has extensive powers of investigation (very similar to those of Consob mentioned above) and, where it assesses serious violations, it has the power to apply significant fines (up to 10 per cent of the company’s previous year’s turnover). In the Italian system, cartels and abuse of dominant position do not amount to criminal offences, so in principle only administrative enforcement is applicable.
The tax authorities collect tax and prevent, assess and punish tax violations. Unlike Consob and the Antitrust Authority, they are not independent bodies. They have extensive powers of investigation, and where they identify tax violations, they apply related fines. The most serious tax violations can also amount to a criminal offence; in those cases, the tax proceeding (and litigation) and the criminal proceeding occur simultaneously. In the event of conviction, criminal punishments are applied to individuals and administrative punishments to corporations.
National Anti-Corruption Authority
Law No. 190/2012 provided for a reshaping of the functions and powers of the National Anti-Corruption Authority (ANAC), in the form of new compliance procedures within the public administration aimed at improving transparency in the decision-making process, avoiding conflicts of interest and essentially preventing the causes of corruption.
By Law Decree No. 90 of 24 June 2014, significant new powers were attributed to ANAC, providing for the effective coordination and exchange of information with the various prosecutor’s offices investigating cases of corruption, and for effective powers of supervision of ANAC regarding relevant public tenders.
Scope of agency authority
What is the scope of each agency’s enforcement authority? Can the agencies pursue actions against corporate employees as well as the company itself? Do they typically do this?
With respect to the scope of each agency’s enforcement authority, see question 1. In principle, both criminal and administrative enforcements apply to corporate employees and to the company itself, and actions against both targets are typically used in practice (with the exception of the Antitrust Authority, whose sanctions only apply to companies). With regard to the conditions for the criminal liability of companies and of their managers and employees, see question 5.
Can multiple government entities simultaneously investigate the same target business? Must they coordinate their investigations? May they share information obtained from the target and on what terms?
As explained in question 1, simultaneous investigations by different agencies against the same target business are allowed by the system and conducted in practice. For criminal enforcement, the responsible bodies are always the public prosecutors; although for administrative enforcement, the relevant agencies vary depending on the specific sector of competence (ie, Consob for ensuring the correct functioning of the financial markets; the Antitrust Authority for ensuring free competition and preventing cartels and abuse of dominant position; and the tax authorities for ensuring the proper collection of tax and preventing tax violations).
In relation to each sector mentioned, specific provisions provide for a certain degree of cooperation and sharing of information (typically, the initiation of a proceeding, as well as the outcome, must be communicated from one agency to the other); however, the main governing principle is that the criminal and administrative proceedings follow their own separate course.
In what fora can civil charges be brought? In what fora can criminal charges be brought?
Criminal charges are brought by public prosecutors before criminal courts, which are composed of professional judges. The main judicial bodies are the following:
- courts of first instance (composed of a sole judge or three professional judges, depending on the seriousness of the crime or term of imprisonment provided for by the law);
- courts of appeal (second instance; ordinarily composed of three professional judges); and
- the Court of Cassation (third instance; ordinarily composed of five professional judges).
There are no specialised criminal courts for particular categories of crimes, but with respect to certain serious crimes (such as murder) non-professional judges also participate in the courts. However, the role of these judges is less relevant than that of a jury in common law systems, because professional judges participate in and influence the formation of the verdict.
As explained in question 3, administrative charges are brought by the competent agencies depending on the relevant sector of competence, and in accordance with the relevant procedural rules.
With respect to Consob, the first stage of the proceeding is governed by administrative law. Consob’s decisions can be challenged before the civil court of appeal of the place where the appellant has its headquarters, in accordance with the rules of civil procedure. In the absence of headquarters or residence within the Italian territory, the competence pertains to the court of appeal of the place where the alleged violation was committed or, as a subordinate, to the court of appeal of Rome. Decisions of the court of appeal can be appealed before the Court of Cassation.
As far as the Antitrust Authority is concerned, the entire proceeding is governed by administrative law. The decisions of the Antitrust Authority can be challenged before the administrative courts (the Administrative Regional Court of Lazio at first instance; the Council of State at second and final instance).
With respect to the tax authorities, the entire proceeding is governed by tax administrative law. Tax assessments issued by the tax authorities can be appealed before specialised tax courts (the province tax commission at first instance; the regional tax commission at second instance; and at final instance, the Court of Cassation).
Corporate criminal liability
Is there a legal concept of corporate criminal liability? How does the government prove that a corporation is criminally liable for the acts of its officers, directors or employees?
Criminal prosecutions can be brought against corporations in relation to a compulsory list of criminal offences committed by their managers or employees (Legislative Decree No. 231/2001). The list of offences is constantly updated and broadened and currently covers many business crimes (such as corruption, fraud against the state, market manipulation, insider trading, false accounting, money laundering, handling stolen goods, health and safety crimes, intellectual property crimes, infringement of trademarks and environmental crimes). The employee’s conduct can be imputed to the entity on the condition that the offence was committed in the interests of or for the benefit of the entity. The entity’s responsibility is qualified by the law as an ‘administrative offence’, but the matter is dealt with by a criminal judge in accordance with the rules of criminal procedure, in proceedings that are usually joined with the criminal proceedings against the entity’s employees.
Where the offence is committed by an employee, an entity can avoid liability by proving it had implemented effective compliance programmes designed to prevent the commission of that type of offence (article 7). Where the offence is committed by senior managers, the implementation of effective compliance programmes will not suffice, and the corporation’s responsibility is avoidable only by proving that the perpetrator acted in fraudulent breach of corporate compliance controls (article 6).
Must the government evaluate any particular factors in deciding whether to bring criminal charges against a corporation?
The effectiveness of a pre-existing compliance programme is the most important factor because, as explained in question 5, on that basis a corporation can avoid criminal liability. Other forms of cooperation with the prosecuting authorities are discussed in questions 21 et seq.
As explained in question 1, criminal prosecutions are compulsory and not discretionary for public prosecutors, in that where they receive a ‘notice of crime’, they have a duty to open formal criminal proceedings and to start an investigation, and subsequently - if they believe that a crime may have been committed - to bring a criminal prosecution by requesting the committal for trial of the target. In contrast, where public prosecutors assess that the ‘notice of crime’ is ungrounded, they issue a decree of dismissal (article 58).
Initiation of an investigation
What requirements must be met before a government entity can commence a civil or criminal investigation?
As explained in question 6, criminal investigations start when public prosecutors receive or directly acquire a notice of crime, namely a notice regarding specific facts potentially constituting a crime, which they must immediately register with a special registrar. The investigation does not start if the notice is clearly unable to constitute a crime. The notice may be generated from criminal complaints filed by injured parties, from reports made by the police or other public officials, from reports issued by the relevant enforcement agencies (see question 1) or from information obtained through other channels (press articles, etc).
With respect to administrative proceedings, the same criteria substantially apply, taking into account that the relevant enforcement agencies (Consob, the Antitrust Authority, the tax authorities, etc) have extensive powers of investigation, so they can open an investigation on their own initiative in accordance with the procedural rules applicable to their sector.
What events commonly trigger a government investigation? Do different enforcement entities have different triggering events?
See question 7.
What protections are whistle-blowers entitled to?
Specific protections for whistle-blowers, in the private and public sectors, were introduced as of 29 December 2017 by Law No. 171/2017. In essence, the main protections are non-disclosure of their identities (to the extent procedurally possible), and the prohibition of discrimination and retaliation against whistle-blowers (with the consequent invalidity of unjustified terminations and changes to work tasks and duties). In the private sector, such measures of protection must be included in the corporate compliance programmes to be implemented in accordance with the Italian system on the criminal responsibility of corporations (Legislative Decree No. 231/2001).
Additional specific and explicit protections for whistle-blowers are provided for under the laws and regulations governing public employees and anti-money laundering provisions (Legislative Decree No. 90/2017). In particular, in accordance with the latter provisions, all relevant subjects (banks and financial intermediaries, the Financial Intelligence Unit, the financial police, etc) must adopt adequate measures to ensure maximum protection of the identity of individuals disclosing suspicious transactions (article 38 of Legislative Decree No. 90/2017).
At what stage will a government entity typically publicly acknowledge an investigation? How may a business under investigation seek anonymity or otherwise protect its reputation?
With respect to criminal enforcement, the investigatory acts carried out by public prosecutors and police officers are, with some exceptions, covert until the conclusion of the preliminary investigations, prior to the moment of requesting committal for trial, at which point the persons under investigation are entitled to obtain a copy of all the investigatory acts carried out by public prosecutors (articles 329 and 415-bis of the Italian Code of Criminal Procedure (ICCP)).
However, the existence of a criminal investigation is usually publicly acknowledged at an earlier stage, especially when particular acts of investigation are carried out, such as the execution of search and seizure warrants, or the issuing of arrest warrants. The potential target of a criminal investigation has the right to file a formal application to the prosecuting authorities in order to be informed about his or her status as a person under investigation. Under special circumstances (ie, in relation to very serious crimes, such as conspiracy, extortion or drug trafficking, or where the risk of compromising the investigation exists), public prosecutors can deny disclosure of the relevant information for a maximum of three months (article 335 of the ICCP).
There is no possibility to seek anonymity for a business subject to criminal or administrative investigations. However, its reputation can be protected by developing a solid line of defence before prosecuting authorities or enforcement agencies, and by implementing a coherent strategy of communication in relation to the media. Where this is not possible, or in addition to this, civil or criminal actions for defamation can be brought against the responsible subjects.
Evidence gathering and investigative techniques
Is there a covert phase of the investigation, before the target business is approached by the government? Approximately how long does that phase last?
With respect to criminal enforcement, as explained in question 7, the investigation formally starts when a notice of crime is received or acquired by the prosecuting authorities, and it is immediately registered in a special register. 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 persons under investigation are entitled to obtain a copy of all the investigatory acts (articles 329 and 415-bis of the ICCP), to be interviewed, to file written submissions, etc.
In that period, prosecuting authorities can decide at their discretion whether and when to approach the target business.
What investigative techniques are used during the covert phase?
The public prosecutors’ powers of investigation are extensive. In particular, they are empowered to:
- compel persons to attend an interview, both witnesses and suspects; the latter, however, have the right not to answer (ie, privilege against self-incrimination);
- compel the provision of information and the production of ‘determined things’ and documents (including documentation and correspondence owned by banks);
- issue search warrants to search premises (where there are reasonable grounds to believe that there are items related to the crime in a certain place) and seize relevant items and documents (items related to the crime that are necessary for the assessment of the facts; article 253 of the ICCP); and
- seize funds in bank accounts and related documentation (where there are reasonable grounds to believe that they are related to a crime; article 255 of the ICCP).
Public prosecutors are not empowered to autonomously issue phone tapping orders, but can make applications to a competent judge, who in practice will often authorise them (article 267 of the ICCP).
After a target business becomes aware of the government’s investigation, what steps should it take to develop its own understanding of the facts?
As explained in question 11, a suspect is entitled to full disclosure by the prosecuting authorities of all the investigatory acts only at the end of the ‘preliminary investigations’.
Prior to that moment, therefore, a target business should take all possible steps to develop its own understanding of the facts, and to define a proper strategy of defence in accordance with its defence counsel (ie, identifying relevant documents for the defence and potential witnesses; and, where appropriate, conducting defence investigations in accordance with article 391-bis of the ICCP, including obtaining written statements or interviews from relevant witnesses).
Evidence and materials
Must the target business preserve documents, recorded communications and any other materials in connection with a government investigation? At what stage of the investigation does that duty arise?
With respect to corporations, and, more generally, individuals or entities carrying out a commercial activity, ordinary civil law provides for a duty to preserve documents, communications and any other materials relating to the business activity for 10 years (article 2220 of the Civil Code). The destruction or concealment of such documentation is punishable with criminal sanctions.
No such duty exists in relation to individuals who are targets of an investigation.
During the course of an investigation, what materials - for example, documents, records, recorded communications - can the government entity require the target business to provide? What limitations do data protection and privacy laws impose and how are those limitations addressed?
As explained in question 12, the public prosecutors’ powers of investigation are extensive, and include compelling the target business (even, where necessary, through raids and search and seizure) to provide any documents, communications and materials that are ‘necessary for the assessment of the crime’ (article 253 of the ICCP). In practice, the threshold is very low and companies are raided frequently, in order to benefit from the surprise effect.
There is no limitation of these powers arising out of data protection and privacy laws.
On what legal grounds can the target business oppose the government’s demand for materials? Can corporate documents be privileged? Can advice from an in-house attorney be privileged?
Theoretically, public prosecutors do not have the power to seize, or request the production of, documents that are subject to legal professional privilege (ie, correspondence between the suspect and his or her defence lawyer, and documents regarding the suspect’s criminal defence), unless such documents represent the corpus delicti (‘elements of the crime’; article 103 of the ICCP). In practice, however, the protection granted by legal professional privilege is very limited, and it is more effective at trial - to prevent the use as evidence of documents covered by privilege - than at the investigation stage (where documents covered by privilege are often seized).
In-house lawyers are not granted protection in the Italian system, and as a consequence their activities and advice are not considered privileged.
May the government compel testimony of employees of the target business? What rights against incrimination, if any, do employees have? If testimony cannot be compelled, what other means does the government typically use to obtain information from corporate employees?
Public prosecutors can order that an employee, officer or director of the target business, or more generally a third party, submit to questioning if, in their view, he or she can provide useful information for the purposes of investigation. This is widely used in practice, and the interview takes place at the prosecutor’s office.
Suspects required to attend interviews with public prosecutors and judicial police have a right to silence (privilege against self-incrimination), from which adverse inferences cannot legally be drawn, and they have a duty (not only the right) to have legal representation (article 64 of the ICCP). In contrast, witnesses have a duty to answer questions truthfully (otherwise, the offence of false deposition is committed) and do not have the right to legal representation.
Under what circumstances should employees obtain their own legal counsel? Under what circumstances can they be represented by counsel for the target business?
Where both the target business and the employee are under investigation, and their lines of defence substantially coincide (completely denying the commission of the alleged offence), they could theoretically be represented by the same legal counsel. In most cases, however, even in the absence of a real conflict of interest, the appointment of different counsel for the target business and its employees is advisable.
Where the government is investigating multiple target businesses, may the targets share information to assist in their defence? Can shared materials remain privileged? What are the potential negative consequences of sharing information?
The sharing of information among target businesses is not expressly regulated under Italian law. On the one hand, there is no express prohibition in that respect; but on the other hand, it is important to prevent prosecuting authorities and courts from considering the sharing of information as the creation of non-genuine lines of defence among suspects. The balance is very delicate and must be found on a case-by-case basis.
No legal privilege applies to shared materials.
The potential negative consequences of sharing information relate to the lack of protection by legal privilege, and to the possible misuse of such information by other suspects or target businesses.
At what stage must the target notify investors about the investigation? What should be considered in developing the content of those disclosures?
With respect to listed companies, information about the initiation of criminal or administrative investigations against the target business can certainly be qualified as price-sensitive information, and as such must be communicated to the market without delay as soon as it has been obtained. The contents of such disclosures should be accurate.
Notification before investigation
Is there a mechanism by which a target business can cooperate with the investigation? Can a target notify the government of potential wrongdoing before a government investigation has started?
There is no formal mechanism for corporations to cooperate with the investigation, or to disclose violations in exchange for lesser penalties (with the exception of plea bargaining, explained in question 28). However, a certain degree of cooperation with the prosecuting authorities before trial (in terms of removal of the officers or members allegedly responsible for the unlawful conduct, implementation of compliance programmes aimed at preventing the same types of offences, compensation for damage, etc) can have a significant impact on reducing the pretrial and final sanctions applied to the corporation (see articles 12 and 17 of Legislative Decree No. 231/2001, which provide for the non-applicability of disqualifications, and the reduction of fines from one-half to two-thirds, in the event of the target providing complete compensation for the damage caused and implementing a compliance programme that will effectively prevent repetition of the same type of offence in the future).
A target can certainly notify the prosecuting authorities of potential wrongdoing before an investigation has started.
Voluntary disclosure programmes
Do the principal government enforcement entities have formal voluntary disclosure programmes that can qualify a business for amnesty or reduced sanctions?
No. See question 21 for conditions entitling reduced sanctions.
Timing of cooperation
Can a target business commence cooperation at any stage of the investigation?
Yes, it can also commence cooperation before an investigation has started. See question 21.
What is a target business generally required to do to fulfil its obligation to cooperate?
See questions 21 and 22.
When a target business is cooperating, what can it require of its employees? Can it pay attorneys’ fees for its employees? Can the government entity consider whether a business is paying employees’ (or former employees’) attorneys’ fees in evaluating a target’s cooperation?
In the course of an investigation, the duties in relation to the prosecuting authorities of both the target business and its employees depend on their role as suspects (privilege against self-incrimination) or witnesses (duty to answer questions truthfully), as explained in question 17.
The target business cannot require cooperation from its employees because the matter is governed by the rules of criminal procedure (see question 26).
The payment by the target business of legal fees for current or former employees is common practice, and in principle it does not give rise to any adverse inference.
What considerations are relevant to an individual employee’s decision whether to cooperate with a government investigation in this context? What legal protections, if any, does an employee have?
As explained in question 25, the matter is governed by compulsory provisions of criminal procedure. If the employee has the status of witness, he or she is obliged by law to attend interviews with prosecuting authorities and to answer their questions truthfully. Conversely, if the employee has the status of suspect, he or she can benefit from the privilege against self-incrimination, and his or her decision to cooperate with prosecuting authorities depends on a careful evaluation of the impact on his or her criminal responsibility.
Under Italian law, with the exception of mafia or terrorist crime, no express benefits are available for individuals who provide cooperation or information to the prosecuting authorities. However, on a case-by-case basis, a certain degree of cooperation can produce positive effects in reducing pretrial coercive measures and the final punishments to be applied to the individual.
How does cooperation affect the target business’s ability to assert that certain documents and communications are privileged in other contexts, such as related civil litigation?
As explained in questions 15 and 16, protection against the production or seizure of corporate documentation is very limited, also in relation to legal privilege.
What mechanisms are available to resolve a government investigation?
As explained in questions 1 and 6, criminal actions are compulsory and not discretionary, and cannot be dropped by the public prosecutors unless they conclude that no crime was ever committed; then they may issue a decree of dismissal for the corporation (article 58 of Legislative Decree No. 231/2001).
With respect to individuals, plea bargaining with prosecuting authorities is recognised by Italian law under certain conditions. It must be approved by the competent judge; the punishment agreed on cannot be more than five years’ imprisonment; and according to the law it must be considered equivalent to a conviction sentence (article 444 of the ICCP). The adoption of plea bargaining entitles the offender to a reduction of the punishment by up to one-third.
Under certain conditions, a civil settlement with the injured person, aimed at compensating for damage, can qualify as a mitigating circumstance to reduce a criminal sentence.
With respect to corporations, in relation to less serious violations and criminal offences for which the corporate managers or employees would be entitled to plea bargaining, a similar mechanism of plea bargaining is available for the corporation (article 63 of Legislative Decree No. 231/2001).
Admission of wrongdoing
Is an admission of wrongdoing by the target business required? Can that admission be used against the target in other contexts, such as related civil litigation?
As explained under question 28, plea bargaining according to the law must be considered equivalent to a conviction sentence (article 444 of the ICCP). However, an admission of wrongdoing by the target business is not required, and according to case law plea bargaining cannot be considered an admission of wrongdoing, but rather an incomplete assessment of responsibility, deriving from the renouncement by the defendant to challenge the charges.
In the related civil litigation, plea bargaining is not binding on the civil judge in the way that 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.
What civil penalties can be imposed on businesses?
If the criminal offence has caused economic or non-economic damage, the offender bears civil liability for restitution and damages (article 185 of the Criminal Code). The person injured by the crime can obtain compensation for damage suffered directly within the criminal proceeding by enforcing a specific civil action in that context (standing as a civil party).
With respect to administrative penalties, the most significant are those applied by Consob, the Antitrust Authority and the tax authorities (see questions 1, 3 and 4).
Consob can apply significant fines either to individuals or to corporations in relation to the administrative offences of market manipulation and insider dealing.
The Antitrust Authority can apply significant fines to corporations (up to 10 per cent of the company’s turnover from the previous year) in relation to antitrust violations (cartels and abuse of dominant position).
The tax authorities can apply significant fines to individuals and corporations responsible for tax violations.
What criminal penalties can be imposed on businesses?
The penalties applicable to corporations include fines, disqualifications and confiscation. Disqualifications can be particularly damaging, because they can include the suspension or revocation of government concessions, debarment, exclusion from government financing, and even prohibition from carrying on business activity (articles 9 to 19 of Legislative Decree No. 231/2001). In the event of a conviction, profits are confiscated and the value of the offence must be taken into consideration, potentially leading to confiscation of corporate assets of equivalent value (article 19 of Legislative Decree No. 231/2001).
Such sanctions can also be applied at the pretrial stage, during the investigation, as interim coercive measures (article 45 of Legislative Decree No. 231/2001).
What is the applicable sentencing regime for businesses?
The sentences are mandatory and the applicable sanctions are provided for in legislation, as explained in question 31. In particular, the criteria for modulating the sanctions are also provided for in legislation, defined by:
- the seriousness of the unlawful act;
- the degree of responsibility of the corporation;
- any activity carried out by the corporation in to eliminate or reduce the consequences of the unlawful act and to prevent the commission of additional offences; and
- for disqualifications, the ability of the specific sanctions to prevent offences of the same type as that committed (articles 11 and 14 of Legislative Decree No. 231/2001).
What does an admission of wrongdoing mean for the business’s future participation in particular ventures or industries?
An admission of wrongdoing and a plea bargain may preclude corporations from taking part in public tenders where specific stringent conditions are met (article 38 of Legislative Decree No. 163/2006, the Code of Public Contracts).
UPDATES & TRENDS
Updates & Trends
Updates and trends
The role of criminal and administrative enforcement in relation to businesses, especially corporations, has significantly increased in recent years, and will increase even more in the future, particularly in relation to transnational investigations.
In particular, the consolidation of the principle of criminal responsibility of corporations, in relation to offences committed by managers or employees in the interest, or benefit, of the corporation, has expanded the powers of prosecuting authorities, especially at the investigations stage, with the possibility of applying interim coercive measures that can consist of particularly damaging disqualifications (such as debarment, etc).
As a consequence of this, the role of compliance programmes has significantly increased as a crucial element for excluding or mitigating the responsibility of corporations, as well as the role of specialised legal counsel who can assist corporations in all relevant stages, by preventing the commission of offences attributable to the corporation in the future, or deploying the most appropriate legal strategy (including media communication) at the start of an investigation, in an effort to reduce the risk of damage to the reputation, financial solidity and even the future business activity of the same corporation.