Why Italy is leading the way in compliance

June 3, 2014

As we move around the world and conduct projects in new (and old) markets, we come across changes in the landscape that should be more closely considered by companies. This is especially true in Italy. Although Italy may not have the growth rates of a BRIC country, it is a huge market for many international companies and should not go unnoticed.

Italy is important from a compliance perspective because of two factors that have now joined together: the Anti-Corruption Law and the Italian Law 231/2001. The Anti-Corruption Law (no. 190, dated 6 November 2012) was published in the Italian official gazette on 13 November 2012. This new law is set to bring the Italian anti-corruption legislation in line with that of other European Union countries. The Italian Law 231/2001 (Legislative Decree no. 231/2001) provides that companies acting in Italy may be held liable, may be fined, and may be subject to restraining orders that prohibit the exercise of business when certain offences – including corruption, bribery, fraud and money laundering – are committed. Each of these laws has a significant amount of power on their own; however, together they are quite formidable. Many companies think the United Kingdom Bribery Act was the first law to really provide an ability to show adequate procedures and be relieved of a large fine. Italy’s laws effectively do the same – and are possibly even more effective at achieving the drive for companies to build strong compliance programmes.

This article will look at each of the laws separately then look at these together and how to manage the risks of them in your Italian business.

 

Italian Anti-Corruption Law

The new Italian Anti-Corruption Law is not a surprise to any compliance professional or lawyer working in that area. The law defines three new corruption and bribery offences that are relevant for the private sector. The three new offences are:

  • induced bribery
  • dealings in unlawful influences
  • private bribery.

Induced bribery (induzione indebita a dare o promettere utilità).

It is an offence for a public officer to abuse his or her powers of office to induce a private party to give or promise money or any other advantage. The private party who is unlawfully induced to give or promise such money or other advantage to the public officer or person charged with a public service is also committing an offence.

Example: A government official asks for a benefit to make a decision and the employee of the company is induced to give that benefit.

Dealings in unlawful influences(traffico di influenze illecite).

It is an offence for a person to take advantage of his or her relationship with a public officer for the purpose of receiving or promising money or any other kind of economic advantage as compensation in exchange for his or her unlawful mediation. It is also an offence for any person to unlawfully give or promise money or other advantage in exchange for unlawful mediation.

Example: An employee uses their relationship with a government minister to get access to confidential information before a tender is released, either in exchange for money or some other advantage or simply because they are using the relationship as a trigger for a benefit.

Private bribery (corruzione tra private).

It is an offence for an executive or employee of a company to detrimentally breach the duties relating to their office or breach their duty of loyalty to the company in exchange for the payment or promise of money or other kind of advantage. The person giving or promising money or another advantage to these individuals is also committing an offence. It is interesting to note that only those companies who bribe other companies will be held liable under the provisions of Italian Law 231/2001 – there is no sanction for the companies that are being bribed.

Example: A salesperson in a company breaches their obligation to the company to sell the company’s products at a reasonable margin by offering money to a procurement person to act as a customer. This is not acting in the company’s best interests.

 

As you can see from the Italian Anti-Corruption Law, while it does not take the typical legal process much further when it comes to liability for corrupt acts, it does lay out the basics of both public and commercial bribery and makes it clear that even the inducement by a public official to a willing payer can give rise to liability.

 

Italian Law 231/2001

If you conduct business in Italy, you and your company are subject to Italian Law 231/2001 (often known as “Law 231”). It doesn’t matter whether you are an Italian company or whether you are a foreign company – if you do business in Italy, either through an Italian company, through a subsidiary of an international company or through a branch, Law 231 applies to you and you should understand its implications. This law is not new; it has been around since 2001. However, its effect has been strengthened because of the change in the law of the underlying offences (i.e. corrupt practices) shown above in the new Italian Anti-Corruption Law.

As mentioned above, Law 231 provides that companies acting in Italy may be held liable, may be fined, and may be subject to restraining orders (that prohibit the exercise of business) and/or confiscation orders if certain offences – including corruption, bribery, fraud and money laundering – are committed, or there is an attempt to commit an offence. This liability applies if the offence or attempted offence is done in the interest of the company, whether by the company’s officers or managers or their subordinates or by third parties acting on behalf of the company (such as agents, suppliers or other partners).

Consequently, an act of bribery or corruption, including private bribery, committed by any employee or third party acting on behalf of the company could result in criminal liability to the individual that committed the offence as well as administrative liability to the company under Law 231.

Potential sanctions to a company under Law 231

If a company is found liable under Law 231 it may be subject to any combination of the following sanctions:

  • monetary fine up to €1.5 million (in the case of multiple crimes, up to €4.5 million)
  • seizure of any profits resulting from the crime
  • publication of the court’s decision
  • disqualifying sanctions (so-called blacklisting).

Disqualifying sanctions can have a considerable impact on a company as they include, among other things:

  • disqualification from performing part or all of the company’s business
  • suspension or revocation of authorisations, permits, licenses or concessions which were functional when the crime was committed
  • prohibition from negotiating with the Public Administration
  • exclusion from benefits, loans and contributions, as well as revocation of those which have already been granted
  • prohibition from advertising goods or services offered by the corporation
  • inability to bid for government contracts, removal of supplier contracts, removal of export privileges, bans on selling products in Italy, and removal of registration required for sales.

Protection against liability

Under article 6 of Law 231, a company may be able to construct an effective defence and therefore be exempted from administrative liability if it can prove that:

  • it has implemented an organisational model aimed at preventing the criminal offence allegedly committed (i.e. a compliance programme is in place)
  • it has appointed an internal supervising committee (organismo di vigilanza), with independent powers of action and control, responsible for the supervision, implementation, effectiveness and compliance of the organisational model
  • the officer, manager (or other subordinate) of the company that committed or attempted to commit the offence fraudulently evaded the protections put in place by the company’s organisational model.

Moreover, the company must prove that it has:

  • assessed all business activities in relation to which crimes may be committed and the kind of offences that could be committed (i.e. conducted a risk assessment)
  • designed and implemented procedures, policies and protocols aimed at preventing offences of the kind to which the company is exposed (i.e. built a compliance policy and procedures)
  • introduced a sanctioning regime in the event of failure to comply with the provisions set out in the organisational model and relevant procedures and protocols (i.e. built an awareness campaign, whistleblower programme and a set of effective investigative procedures to use if a breach occurs)
  • made provisions for adequate training programmes for staff and high-level management (i.e. introduced a comprehensive communications and training programme).

All of these requirements would not look unfamiliar to those that have reviewed the United States Federal Sentencing Guidelines for Organizations (FSGO). The FSGO were originally passed to meet the requirements of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 1997. The requirements are broadly similar to all basic compliance programmes and have the hallmarks of international quality standards on compliance (for example, AS3806, the Australian Standard for compliance).

Like all compliance programmes, the implementation of a Law 231 compliance programme doesn’t mean that you will be exempted from liability, but it can certainly lead to a reduction of the applicable sanctions and debarments. Italian courts have also ruled that the ex-post implementation of an effective compliance programme can exclude the risk of the crime reoccurring and therefore avoid the application of protective interim measures.

 

Ten things to remember if you operate a part of your business in Italy

  1. Ensure your company uses a recognised compliance standard. If your company doesn’t already use one, the Australian Standard for compliance (AS3806) is a good place to start.
  2. Ensure your company’s code of conduct and associated training are provided in Italian.
  3. Conduct a risk assessment in Italy to look for specific compliance issues that are important in the Italian market, with a special focus on those offences which are covered in Law 231.
  4. Check that your existing anti-corruption programme is sufficient for Italian laws (in particular, focus on commercial bribery) and ensure that it has been effectively implemented locally (don’t just rely on the staff saying that it has).
  5. Ensure that local staff are trained in Italian, and that they all understand the consequences of both the Anti-Corruption Law and Law 231, and the way that the two laws work together.
  6. Regularly audit your compliance programme, and assess actual books and records in detail.
  7. Put in place a local Italian compliance committee (organismo di vigilanza) that reviews the compliance programme and tests its strength regularly with benchmarking and best practice analysis. This committee can be part of a regional committee which reports to the company’s overall audit committee.
  8. Conduct detailed due diligence, assessments, training and certifications on all third parties that work with your company in Italy.
  9. Streamline and integrate all information channels within your company to ensure that whistleblowers have local methods of raising issues.
  10. Take the development of the Italian compliance programme seriously and focus on improving the depth of the programme, despite whether there has been strong enforcement in your industry or not.
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