I. Corporate liability deriving from criminal activity
1. What it is the nature of corporate liability deriving from criminal activity? What is its legal basis?
According to Legislative Decree No. 231, dated 8 June 2001 (“Law 231”), entities, companies and associations may be held directly liable for crimes of subjective intent committed either in Italy or abroad on behalf or for the benefit of a company by a class of persons who have operational authority and are therefore liable on behalf of the company. Such class of persons includes: (i) directors, managers who represent a company or any relevant autonomous business unit, or de facto manage and control a company; or (ii) individuals who are subject to the direction and supervision of the above managers and directors.
A company may be held liable under Law 231 only if the crimes listed in paragraph 2 below have been committed in the company’s interest or for the company’s benefit. Conversely, no company liability arises if the top management or the individuals under top management’s control acted exclusively in their own or third parties’ interest.
Law 231 expressly states that corporate liability deriving from criminal activity has an administrative nature, as the sanctions imposed on the company, entity or association are administrative sanctions, such as pecuniary sanctions or restraining measures (please see paragraph II below).
2. Type of crimes/administrative offenses from which, according to the legislature, corporate liability may arise
Company liability under Law 231, arises only if the following crimes are committed:
- Corruption-related crimes: Corruption and bribery (Criminal Code, Sections 317, 318, 319, 319 bis, 319 ter, 320, 321 and 322 bis); Instigation to corruption (Criminal Code, Section 322); Embezzlement (Criminal Code, Section 316 bis); Wrongful obtainment of contributions to the detriment of the state (Criminal Code, Section 316 ter); Improper inducement to give or promise a benefit (Section 319 quater of the Criminal Code)
- Counterfeiting and related crimes: Alteration or illicit use of trademarks or distinguishing signs or patents, models or designs (Criminal Code, Section 473); Introduction of counterfeit goods in the state (Criminal Code, Section 474)
- Crimes against industry and trade: Harming the freedom of industry and trade (Criminal Code, Section 513); Unlawful competition with threat or violence (Criminal Code, Section 513 bis); Fraud against national industries (Criminal Code, Section 514); Fraud in the exercise of trade (Criminal Code, Section 515); Sale of non-genuine food as genuine (Criminal Code, Section 516); Sale of industrial products with untruthful marks (Criminal Code, Section 517); Manufacturing and trade of goods made encroaching upon industrial property rights (Criminal Code, Section 517 ter); Infringement of geographic indications or designations of origin of agricultural and food products (Criminal Code, Section 517 quater)
- Fraud against the state (Criminal Code, Section 640); Aggravated fraud to obtain public funding (Criminal Code, Section 640 bis)
- IT crimes: Unlawful access to an IT or telematic system (Criminal Code, Section 615 ter); Unlawful possession and diffusion of IT or telematic system access codes (Criminal Code, Section 615 quater); Diffusion of equipment, devices or IT programs aimed at damaging or interrupting an IT or telematic system (Criminal Code, Section 615 quinquies); Interception, impediment or unlawful interruption of IT or telematic communications (Criminal Code, Section 617 quater); Installation of equipment aimed at intercepting, impeding or interrupting IT or telematic communications (Criminal Code, Section 617 quinquies); Damage to information, data and IT programs (Criminal Code, Section 635 bis); Damage to information, data and IT programs used by the state or other public bodies or otherwise of public utility (Criminal Code; Section 635 ter); Damage to IT or systems (Criminal Code, Section 635 quater); Damage to IT or telematic systems of public utility (Criminal Code, Section 635 quater)
- Market manipulation crimes: Abuse of privileged information (Italian Finance Code, Section 184); Market manipulation (Italian Finance Code, Section 185)
- Crimes on safety at the workplace: Manslaughter (Criminal Code, Section 589); and serious or extremely serious negligent injury (Criminal Code, Section 590), committed in violation of workman’s safety regulations
- Labor-law related crimes: Hire of employees with irregular residency permit (Section 22 of the Legislative Decree 286/1998); Workers’ exploitation (Criminal Code, Section 603 bis)
- Money-laundering related crimes: Handling stolen goods (Criminal Code, Section 648); Money laundering (Criminal Code, Section 648 bis); Use of monies, assets or utilities of illicit origin (Criminal Code, Section 648 ter); Self-money-laundering (Criminal Code, Section 648 ter. 1)
- Incitement not to give declarations or to give mendacious declarations to the judicial authorities (Criminal Code, Section 377 bis)
- Corporate crimes: False statements in corporate records (Civil Code, Section 2621); False statements in corporate records of moderate extent (Civil Code, Section 2621-bis); False statements in corporate records in prejudice to shareholders or creditors (Civil Code, Section 2622); False statements in mandatory prospectus (Civil Code, Section 2623); Obstruction of control activities (Civil Code, Section 2625); Fictitious formation of corporate capital (Civil Code, Section 2632); Undue reimbursement of contributions (Civil Code, Section 2626); Illegal allocation of profits or reserves among shareholders (Civil Code, Section 2627);
- Unlawful transactions in the stock of the company or its controlling company (Civil Code, Section 2628);Transactions prejudicial to creditors (Civil Code, Section 2629); Failure to disclose a conflict of interest (Civil Code, Section 2629 bis); Undue distribution of corporate assets by liquidators (Civil Code, Section 2633);
- Unlawful influence on shareholders’ meetings (Civil Code, Section 2636); Stock jobbing (Civil Code, Section 2637); Obstruction of activity of public regulatory authorities (Civil Code, Section 2638); Corruption in the private sector (Civil Code, Section 2635, 2635 bis)
- Environmental crimes: Killing, destruction, seizure and taking possession of protected wild fauna and flora (Criminal Code, Section 727-bis); Destruction or deterioration of a habitat within a protected site (Criminal Code, Section 733-bis); Sewage dumping and violation of the rules for the management of dumping industrial sewage (Section 137 of Legislative Decree 152/2006); Unauthorized waste management (Section 256 of Legislative Decree 152/2006); Failure to perform site drainage and failure to file notices with the competent authorities in the event of site contamination (Section 257 of Legislative Decree 152/2006); Breach of the duties of communication, keeping of mandatory registers and forms on environmental matters (Section 258 of Legislative Decree 152/2006); Illegal waste trading (Section 258 of Legislative Decree 152/2006); Organized activities for the illegal trading of waste (Section 260 of Legislative Decree 152/2006); Violation of the mandatory fulfilments intended to ensure the so-called “traceability” of waste through the SISTRI electronic system (Section 260 bis of Legislative Decree 152/2006); Violation of the rules on emission of polluting substances in the air (Section 279 of Legislative Decree 152/2006); Illicit importation, exportation or re-exportation of wild protected animal or vegetable specimens as well as parts of them or derived products (Section 1 and 2 of Law 150/1992); Commercialization of plants artificially reproduced in breach of applicable laws (Section 1 of Law 150/1992); Falseness (material or ideological) in acts committed by individuals or by public officials in relation to certificates, permits or other documents mandatory under Law No. 150/1992 on the importation and exportation of protected plants and wild animals (Section 3 bis of Law 150/1992); Illicit possession of specimens of living mammals and reptiles reproduced in captivity that are a danger to health and public safety (Section 6 of Law 150/1992); Violation of the rules on termination and reduction of the usage of substances that damage the ozone layer (Section 3 of Law 549/2003); Pollution of the sea committed with fraud or negligence (Section 9 of Legislative Decree 202/2007); Environmental pollution (Criminal Code, Section 452-bis); Environmental disaster (Criminal Code, Section 452-quater); Environmental pollution and environmental disaster committed with gross negligence (Criminal Code, Section 452-quinquies); Trade and dereliction of high radioactive material (Criminal Code, Section 452-sexies); Criminal association related to environmental crimes (Criminal Code, Section 452-octies); Killing, destruction, catching, taking, and possession of protected wild animal and vegetable species (Criminal Code, Section 727-bis); Destruction or deterioration of habitats within a protected site (Criminal Code, Section 733-bis)
- Residual crimes: Criminal association (Criminal Code, Section 416); Criminal association of a mafia type (Criminal Code, Section 416 bis); Criminal association aimed at trafficking human body organs, dead body organs or aimed at the intermediation in the donation of human body organs (Criminal Code, Section 416 bis, paragraph 6); Electoral exchange between mafia members and politicians (Criminal Code, Section 416 ter); Kidnapping for ransom (Criminal Code, Section 630); Association for the purpose of illegal trafficking in drugs or narcotic substances (Presidential Decree 309/1990, Section 74); Forgery of currency/credit cards (Criminal Code, Sections 453, 454, 455, 457, 459, 460, 461 and 464); Fraud by using any electronic means against the state or any another public entity (Criminal Code, Section 640 ter); Computer fraud by the subject providing electronic signature-certifying services (Criminal Code, Section 640 quinquies); Terrorist crimes and crimes aimed at subverting the democratic order (Criminal Code, Sections 270 bis, quater, quinquies, sexies; 280, 280 bis, 289 bis, 302, Law 18/1980 Sections 1 and 2); Female genital mutilation practices (Criminal Code, Section 583 bis); Reduction to slavery (Criminal Code, Section 600); Child prostitution (Criminal Code, Section 600 bis); Child pornography (Criminal Code, Section 600 ter); Possession of child pornography (Criminal Code, Section 600 quater); Tourism initiatives for the purposes of exploiting child prostitution (Criminal Code, Section 600 quinquies); Trafficking in human beings (Criminal Code, Section 601); Sale and purchase of human beings (Criminal Code, Section 602); Crimes related to copyright infringements (Law 633/1941, Sections 171, 171 bis, 171 ter, 171 septies and 171 octies); Employment of foreign nationals who are illegal immigrants (Law 109/2012, Section 2)
3. Identification of companies and entities to which liability may apply
The liability applies to all companies, associations and entities, with the exceptions of the state and territorial public entities, such as regions and provinces, and to non-economic public entities such as public universities, the National Institute for Social Security (INPS), the High Healthcare Institute (Istituto Superiore di Sanità), or other healthcare entities and public hospitals.
4. Corporate liability for crimes committed abroad by representatives or subsidiaries
Section 4 of Law 231 states that in the cases and under the conditions provided for in Sections 7, 8, 9 and 10 of the Italian Criminal Code, entities with head offices in Italy are also liable for crimes committed abroad, unless such entities are prosecuted in the state where the crime has been committed.
Sections 7 and 8 of the Italian Criminal Code provide for the application of Italian law with respect to the following crimes committed by Italian citizens or foreigners abroad: i) crimes against the Italian State; ii) crimes of counterfeiting the seal of the Italian State and of using such counterfeit seal; iii) crimes of counterfeiting currency that is legal tender in the territory of the Italian State, or of public valuables and securities; iv) crimes committed by public officials involving the abuse of their powers or the violation of the duties of their office; v) political crimes; and vi) any other crime for which special rules of law or international conventions provide for the application of Italian criminal law.
Sections 9 and 10 of the Italian Criminal Code provide for the application of Italian law with respect to: i) crimes committed by Italian citizens abroad for which Italian law prescribes life imprisonment, or imprisonment for a minimum of 3 years; and ii) crimes committed by foreigners abroad against the Italian State or citizens for which Italian law prescribes life imprisonment, or imprisonment for a minimum of 1 year. In both cases, Italian law will apply on the condition that the offender is found on Italian territory.
Please note that according to paragraph 2 of Section 4 of Law 231, in cases where the law provides that the offender is prosecuted at the request of the Ministry of Justice, the entity will be prosecuted only if the above request is made also with respect to the entity.
5. Corporate liability in the case of transactions taking place after the commission of a crime (acquisitions, mergers, demergers, etc.)
Specific rules govern company liability in case of transformation, merger, demerger, and transfer or contribution of business as a going concern. In particular:
- Transformations: The company, though transformed into a different type (eg, from a limited liability company such as an “S.r.l.” into a joint stock company such as an “S.p.A.”), will continue to be liable for crimes committed before the date on which the transformation became effective.
- Mergers: The company resulting from the merger will be liable for any crimes committed by the merged companies.
- Partial demergers: The demerged company will remain liable for crimes committed before the date on which the demerger became effective. The beneficiary of the business unit involved in the crime will be jointly liable with the demerged company for the payment of pecuniary fines (in full, the beneficiary; up to the value of the net assets kept, the demerged company). Restraining measures will apply to the demerged company or the beneficiary, as the case may be, which maintained or acquired the business unit involved in the crime or a portion of it.
- Total demergers: The same rules as in partial demergers will apply, except that the demerged company will no longer exist.
- Transfers of business as a going concern: The transferee will be jointly liable with transferor only for the payment of pecuniary fines, up to the value of the business acquired, provided however that: (a) the transferor has already been asked for payment, and did not pay; and (b) the pecuniary fines are recorded in the mandatory accounting books of the transferor, or derive from administrative wrongdoings known to transferee.
II. Applicable sanctions
1. Type of sanctions applicable to the company
If the company is found liable for any of the abovementioned crimes committed by the top management or an individual under the top management’s control, criminal courts may apply the following penalties to the company:
- Restraining measures
- Temporary suspension from conducting the company’s business
- Suspension or revocation of any authorizations, licenses or permits held by the company with respect to the business unit concerned by the crime
- Prohibition on negotiating and entering into contracts with any entities of the public administration, except for contracts relating to public services
- Denial of financing, contributions or financial facilities applied for by the company, or revocation of any such financing, contributions or financial facilities already granted to the company
- Prohibition on advertising the company’s goods and/or services
As an additional sanction, criminal courts may order that a judgment against a liable company to which a restraining measure has been applied be published in one or more newspapers indicated by the courts themselves.
Criminal courts may even order a shutdown of the business unit concerned with the crime, if the company: (a) has achieved significant profits; and (b) in the previous seven years has already been prohibited three times from conducting its business activity.
b. Pecuniary fines
Pecuniary fines range from a minimum of EUR 25,800 to a maximum of EUR 1,550,000, depending on the type of crimes; such fines may be increased by one-third if the company achieved a significant profit through the crime.
Subject to certain conditions, pecuniary fines may be decreased up to one-half, but the fine can never be lower than EUR 10,000.
The company will be solely responsible for the payment of any pecuniary fines applied pursuant to Law 231.
c. Confiscation of any profit or revenue (“Profit Confiscation”) deriving from the crime.
Criminal courts will always order Profit Confiscation if the company earned any profit or revenue as a result of the crime and did not return it to the injured party.
2. Interim measures, cease and desist orders, bans and confiscatory measures
If the company is found liable for any of the mentioned Law 231 crimes, the interim measures, cease and desist orders, bans and confiscatory measures indicated in paragraph II, a), and c) would apply.
3. Liability of directors or managers for not having adopted (intentionally or negligently) measures for the prevention of the crime
No specific provision of Italian law addresses the liability of directors and managers for not having adopted measures for the prevention of the crime (ie, an ad hoc model of organization, management and control, hereinafter “Law 231 Model”). However, some Italian courts have held that the directors of the company who did not adopt a Law 231 Model are liable vis-à-vis the company and must refund the economic damages suffered by the company.
III. Measures and “models” of prevention and effects of the same on corporate liability and applicable sanctions
1. Consequences of the adoption of a compliance “model” and effects on corporate liability for crimes committed by the company’s managers, directors or representatives (cases in which it is possible to obtain an exemption from liability or a mitigation of the sanction)
Companies may avoid the risk of incurring company liability, provided that they implement an effective Law 231 Model. An effective compliance program is the primary method by which a company can exclude or mitigate potential punishment after an indictment for misconduct or wrongdoing.
The requisites that a Law 231 Model must have for a company to benefit from the exemption from liability, as identified by the law, the applicable industry codes and the most relevant courts’ decisions, are the following:
- Identify the risky activities or areas of activities within the company’s business.
- Identify the modalities for handling financial resources suitable to prevent crimes.
- Provide for specific protocols (policies) aimed at planning the formation and implementation of the company’s resolutions with respect to the prevention of potential crimes.
- Appoint a monitoring body with autonomous powers of control, in charge of controlling the proper implementation and updating of the Law 231 Model.
- Provide for continuous training to company employees and representatives on the Law 231 Model.
- Provide for specific disciplinary sanctions applicable in case of noncompliance with the guidelines provided for in the Law 231 Model.
If a model meets these requirements, prosecutors should not bring criminal charges against the company, but only against the individuals who committed a crime.
Should a criminal action be brought against a company that had no Law 231 Model in place at the time the crime was committed, the relevant judge should mitigate the criminal sanctions to be imposed on the company if an adequate and effective Law 231 Model is implemented by the company in the course of the criminal trial.
2. Modality according to which a compliance “model” must be adopted in order to benefit from exemption from responsibility or mitigated punishment (codes of ethics, procedures, etc.)
With respect to the structure of the Law 231 Model, a model should be composed of:
- A general part listing the relevant Law 231 crimes
- A special part, listing the most relevant areas of risks of committing Law 231 crimes
- A code of ethics, indicating the ethical values that are relevant for the company
- A set of protocols regulating the most sensitive areas of business (eg, interactions with public officials, participation in public tenders, etc.)
For further information, please see Paragraph III. 1. above.
3. Monitoring: independent person or body to control/supervise, with the purpose of verifying the correct application of the “model”; Model of operation of such person or body
Although Law 231 does not expressly provide for a specific model of operation of the monitoring body, according to the best practices and the guidelines issued by the relevant industry association, the monitoring body should:
- Meet regularly (once a month or so), to monitor the proper implementation of the Law 231 Model.
- Receive adequate flows of information from company departments on the most sensitive activities where the risk of committing Law 231 crimes is potentially higher.
- Be responsible for the adequate training of directors, managers and employees on Law 231 matters.
- Be responsible for the continual updating of the Law 231 Model.
As a final remark, the composition of the monitoring body should vary depending on the size of the company and on the potential exposure of the same company to the risk of committing Law 231 crimes. Usually, a monitoring body composed of a sole member is acceptable for small companies, while medium-sized and big companies should appoint more than one person as members of the monitoring body.
IV. Judicial proceedings to determine corporate liability
1. Court competent to decide the liability of and penalties applicable to the company
According to Sections 34 and 35 of Law 231, the judge who is considered competent to decide the company’s liability will also decide the extent of personal liability of the individual charged with the crime.
The court applies to the entity the same procedural rules applicable to the individual (with a very few exceptions expressly stated by Law 231).
2. Possibility of the application of interim measures
During preliminary investigations and/or the trial, the judge, upon the prosecutor’s request, can apply interim measures to the company (for a maximum of 1 year) if these circumstances are both met:
- There is substantial evidence to prove the company’s liability.
- There are specific and grounded elements that lead the judge to believe that the company will commit the same type of crime again.
Interim measures correspond to restraining measures (see above II, 1, a) and the judge has the power to apply the one that is most adequate and proportional to the concrete charge.
Interim measures can be suspended by the judge if the company:
- Entirely compensates the damage and eliminates the crime’s outcomes (or it effectively tried to)
- Implements an effective Law 231 Model aimed at preventing the crime that has been committed
- Makes available the profit in order to have it confiscated
If the judge agrees with the request, suspension may be granted on bail.
The judge can always order the seizure of what could be confiscated: the seizure may have heavy economic consequences for the company, since ― as provided by Section 19 ― it can be applied also to the “equivalent of the profit,” which refers to goods, stocks or money deposits. The company can always appeal the court’s decision.
3. Plea bargains and related effects on corporate liability
The company can always ask to settle the proceeding with a plea bargain when, for the crime committed, the punishment for the company consists only of a pecuniary fine; in the other cases, plea bargaining is possible only if it is admitted by the law regulating the crime committed by the individual.
Plea bargaining is never allowed if the judge applies the shutdown restraining measure.
4. Persistence of corporate liability if the crime is extinguished
According to Section 8 of Law 231, the company’s liability persists: i) if the crime has been committed by an unknown person or by non-chargeable individual; or ii) if the crime is extinguished due to a reason different from amnesty.
According to this section, the trial against the company may continue even if, for example, the crime the individual is charged with is statute-barred or the accused person has died. In this case ― since the criminal liability of the individual has not been proved ― the company’s attorney can take advantage of the defense by arguing also the absence of one of the elements of individual criminal liability, such as the lack of malice or gross negligence, and/or the causal relationship between the action and criminal event. The company’s liability, indeed, arises only if a crime has been committed (that is to say, proved to have been committed) in its interest or for its benefit, breaching the compliance rules stated in Law 231.
V. Corporate liability in multinational groups
1. Liability of parent companies located abroad in the case of offenses committed by directors, managers or representatives of the local company
In setting out the requirements on which company liability is based, Law 231 focuses its attention on single entities, without providing any specific regulation for when the criminal offenses therein included are committed in the context of a corporate group.
In other words, as of today, no provision of law clarifies if and upon which particular conditions, if any, a parent company may be held criminally liable in relation to offenses committed by any of the local company’s top management staff or individuals subjected to the top management staff’s supervision and control.
Given the above, both authors and case law have tried to make up for the legislative gap over the years, sometimes appealing to and sometimes rejecting any appeal to the abstract and vague concept of “group interest,” which may however lead to unlawfully extending the criminal liability of local companies to parent companies any time a corporate group is involved.
This being said, and absent any specific provisions on the matter, only in the express guidelines set forth in Law 231 can a lawful solution of the issue be found.
For this purpose, given a group of companies, in order to affirm the criminal liability of the parent company:
- All and each of the requirements set forth in Law 231 as the basis of corporate liability must exist and be verified with specific reference to the parent company.
- Such verification must be concretely performed on a case-by-case basis, and not inferred through abstract generalizations.
2. Basis of liability and applicable sanctions
According to the above guidelines, given a group of companies, should one of the offenses relevant under Law 231 be committed by individuals of the local company, the parent may be held criminally liable only if:
- An individual in the parent company contributed to the commission of the offense pursuant to Section 110 of the Italian Criminal Code (involvement).
- This individual holds a top management office within the parent company or is subjected to the top management staff’s supervision and control within the parent company.
- The parent company’s individual contributed to the commission of the offense on behalf or for the benefit of the parent company itself and the holding.
As to the sanctions, see paragraph II above.
VI. Significant case law concerning corporate liability arising from crimes and draft laws under discussion
1. Significant case law, if any
- Supreme Court, Sez. V., 20.06.2011, n. 24583: The parent can be also liable for a crime committed by one of its related companies, if the individual acted on behalf of the holding and in its interest.
- Supreme Court, Sez. V., 18.12.2013, n. 4677: The monitoring body is not considered effective if it does not have independent control powers and if it is reliant on the subject that has to be monitored.
- Supreme Court, Sez. Un., 24.04.2014, n. 38343: With reference to crimes committed in violation of workmen’s safety regulations, the company’s profit consists in the money savings resulting from not adopting all the precautions aimed at minimizing the risk of accident (both from technical and operative perspectives.
- In past years, the Supreme Court intervened many times to specify the limits of profit confiscation. From the most relevant judgments (Sez. V, 28.11.2013, n. 10256; Sez. VI, 20.12.2013, n. 3635; Sez. Un., 31.01.2013, n. 18734), we can summarize the main issues, as follows:
- The profit must be strictly causally related to the crime.
- The profit includes the benefits derived from the use of the money (eg, investments).
- Money in a bank account can be seized/confiscated only if it is proved that it is related to the crime.
- The profit does not include indirect benefits, such as increasing or favoring the company’s market position.
- Receivables can be confiscated if they are certain, of a fixed amount and accrued (enforceable).
- The profit can consist of money savings (eg, by not adopting safety and/or environmental procedures).
Please note that in the past 2 years, few judgments (Sez. Un., 30.01.2014, n. 10561) stated that “profit consists in any benefit, also indirect, related to the crime”: this broadens considerably the borders of profit, with relevant consequences for the company involved (also from an interim measures perspective). This leaning has been confirmed by the Supreme Court in 2015 (Sez. VI, 05.05.2015, n. 18634) and 2016. Specifically, a very recent judgment (Sez. III, 20.07.2016 n. 30995) stated that the prosecutor is entitled to request that the judge of the preliminary investigations directly seize an amount of money from the company’s bank account, just by proving that this amount is related to money savings committed in the interest of the company.
2. Proposed or contemplated new legislation
Almost every second year, the Italian government adds more crimes that may give rise to company liability, the latest being was the workers exploitation crime, which was introduced in November 2016.
Since 2014, the government has been evaluating opportunities to add to the Law 231 crime list a selected group of tax crimes. This debate is still ongoing.