From a compliance perspective, the year 2014 was a disastrous one for Italy. It was the year that three major corruption scandals were uncovered, involving the business environments of three important cities.
In Milan, investigations unearthed an extensive network of favours and bribery involving companies contracted for the construction work for the 2015 Universal Exposition (Expo 2015). In Venice, meanwhile, 35 people were arrested under charges of corruption involving public officials. The detainees allegedly bribed foreign politicians in order to be awarded a public contract to participate in the MOSE (Modulo Sperimentale Elettromeccanico, or Experimental Electromechanical Module) Project to protect the city from flooding. And in Rome, there was the discovery of a complex network of corruption and organised crime, which domestic and foreign media were quick to label Mafia Capitale (Capital Mafia).
Last year was also the year in which Italy earned the unfortunate title of most corrupt country in Europe, according to various country intelligence sources. News like this has the predictable effect of unnerving foreign investors and business partners, who worry about their unconscious involvement in what seems like a nationally-widespread phenomenon. Indeed, the domestic government was the first entity to worry about the international consequences of Italy being associated with corruption-related activities; Prime Minister Matteo Renzi himself has often spoken about the need for a government-led cultural change, publicly declaring the importance of stricter punishments.
In line with this objective, the month of April 2015 began with a strong movement for change. On 1 April, a new bill was approved by the Senate, with 165 supporting votes (out of a possible 252). The anti-corruption bill is unofficially known as the ‘Grasso Bill’, after the current President of the Senate Pietro Grasso. After the Senate’s decision, it was passed over to the Chamber of Deputies for further discussion. If the Chamber approves it without adding any amendments, it will become effective within 75 days of the Chamber receiving it. In this case, the new law will bring relevant changes to the current legislative environment, and its effects will be felt by all companies operating in Italy.
CLAMPING DOWN ON CORRUPTION AND ASSOCIATION WITH ORGANISED CRIME
The bill proposes to increase the penalties for corruption and organised crime, specifying the conditions under which these need to be applied. Moreover, it proposes to strengthen the power of the National Anti-Corruption Authority (ANAC), allowing it to monitor public auctions and third-party suppliers – a necessity painfully highlighted by the widespread corruption of public officials uncovered in the Expo 2015 investigations.
Companies operating in Italy need to be especially aware of the following changes:
1) Corruption and public contracts
The penalties for corruption will be harsher. The stronger changes regard so-called proper corruption (corruzione propria), where public officials neglect their official duty in exchange for money or other gifts. Under the new anti-corruption law, this behaviour would be punished with six to ten years’ imprisonment. Similar penalties are prescribed for induced corruption (corruzione indotta), where public officers abuse their power in order to induce a private party to give money or other gifts. This conduct, too, will be punished with six to ten years of prison, plus an extra six months.
There will also be secondary effects to a condemnation for corruption-related activities, with the condemned party not able to enter any contract with the Public Administration for up to five years from the time of the sentence (an increase from the current ban of three years). Furthermore, any condemnation equal or above two years of imprisonment invalidates any public contract active at the time of the facts.
2) Association with organised crime
Increased penalties are also prescribed for organised crime. Simple membership to a group will be punished with ten to 15 years’ imprisonment, while in the case of a leadership position the penalty rises to between 12 and 18 years’ imprisonment, and up to 26 years if the crimes committed involved the use of weapons.
3) ANAC and public contracts monitoring
ANAC will be awarded stronger monitoring powers. According to the text of the legislation, a copy of all public contracts will be sent to ANAC to verify against potential corruption activities. Every time a party is accused of a regulatory breach in the assignment of a public contract, the case and its outcome will be directly communicated to ANAC. All entities that plan to subcontract a supplier through a public auction, whether a private or public company, will have to communicate all the relevant information to ANAC, including the identities of all suppliers invited to participate in the auction.
BRINGING PENAL BACK
Extremely relevant for all companies is the change that the bill proposes to bring to Article 2621 of the civil code, which deals with accounting fraud.
It will radically change the legislative grounds from the previously-lighter penalties. Accounting fraud by all levels of management will be prosecuted and penal sanctions will be handed down. Harder penalties are set for management of publicly-listed companies, where the crime will be punished with three to five years’ imprisonment, while management of private companies will face penalties of one to five years’ imprisonment. The law also lists an additional financial penalty, calculated as 400 to 600 of the company’s shares for publicly-listed companies, and 200 to 400 shares for private companies.
An interesting point of the law is that prosecutors do not need to prove that the fraud negatively affected the market or the competition; the effect is assumed by default.
Any company operating in Italy, even if foreign, is subject to Italian law. It is therefore extremely important for everyone operating, or planning to operate, in the country to be aware of the changing domestic legislative environment.
The anti-corruption bill is not yet valid as a law; it has been approved by the first chamber (the Senate), but it still needs to be approved by the second chamber (the Chamber of Deputies). Nevertheless, the possibility that it will become valid is very strong. The legislative process and its outcome need to be monitored attentively so that companies’ internal codes of conduct and compliance programmes can be reviewed and updated in due course.