Monthly Archives: May 2015

New Environmental Crimes Introduced: Time to Update Your Corporate Compliance Program!

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On May 19, 2015 the Italian Senate passed bill no. 1345-B, introducing new environmental crimes. The law will become effective the day after its publication on the Official Gazette, following promulgation by the President of the Republic. The law introduces the following environmental crimes in the form of delitti (i.e. the most serious form of crimes), punishable with imprisonment and fines. It is important to note that such crimes are included among the crimes that give rise to criminal corporate liability pursuant to Legislative Decree 231/2001 (“Decree”).  As a result, companies who have already set up an organizational and control model aimed at exempting it from criminal corporate liability must update it in order to take into account prevention of the newly introduced criminal conducts. The new crimes can be described as follows:

  • Polluting.    Anyone who unlawfully damages or jeopardizes in a significant and measurable way waters, air, the surface or the underground, as well as ecosystems, plants or animals, is punishable with imprisonment between 2 and 6 years plus a fine between Euro 10,000.00 and 100,000.00. Sanctions may be higher in case of pollution of protected areas (such as historical sites) or protected plants or animal species. Also, imprisonment can reach as far as 20 years in case of death or injury as a consequence of pollution. As far as companies are concerned, commission of such crime leads to the imposition of monetary sanction between 250 and 600 quotas as per the Decree. Blacklisting sanctions set forth in the Decree may also apply.
  • Environmental disaster. This crime punishes, alternatively, the irreversible alteration of an ecosystem’s equilibrium, the alteration of an ecosystem’s equilibrium the restoring of which is particularly burdensome or can be achieved only by extraordinary measures, or the offense to public safety in light of its effects or the number of people affected. The mentioned conducts are punishable with imprisonment between 5 and 15 years. Also in this case, if protected areas or species are damaged, imprisonment can be increased by one third. The commission of such crime by a company leads to the imposition of monetary sanctions between 400 and 800 quotas, as per the Decree. Also in this case, blacklisting sanctions may apply.
  • Trafficking and disposal of highly radioactive materials.                       Unlawful sale, purchase, receipt, transportation, importation, exportation, supply, detention, transfer and disposal of highly radioactive materials are punished with imprisonment between 2 and 6 years, plus a fine between Euro 10,000.00 and 50,000.00. Sanctions may be increased in case of danger of damage or deterioration of waters, air, the surface or the underground, as well as ecosystems, plants or animals. Also, if any of the conducts jeopardizes the life or safety of individuals, sanctions may be increased by one half. Companies may be punished with monetary sanctions between 250 and 600 quotas in accordance with the Decree.
  • Hindered control. Hindrance of vigilance and control activities on environment, hygiene and safety on the workplace is punished with imprisonment between 6 months and 3 years.

If the above crimes are committed in the form of organized crime, sanctions already set forth against organized crime are increased by one third, and, if companies are involved, they may face sanctions between 300 and 1000 quotas as per the Decree. Sanctions are increased by one third to one half in case any public official or person in charge of a public service carrying out environmental-related offices partakes in the criminal organization. Not only the law provides for new crimes, but it also incentivizes remedial actions. Sanctions are in fact diminished by one half to two thirds in case remedial actions are taken to prevent occurrence of further consequences or to restore the status quo ante. Also, whistle-blowing is incentivized by reducing sanctions by one third to one half. Quite interestingly, the law prevents the statute of limitations from running in case of stay of proceedings ordered to allow remedial actions to be taken. Lastly, failure to take remedial actions, if ordered by a judge or by the law, is punished with imprisonment between one and four years plus a fine between Euro 20,000.00 to 80,000.00.

Italian Corporate Criminal Liability 101: Basic Facts You Should Know

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Are Companies Criminally Liable under Italian Law? Yes!

Legislative Decree no. 231/2001 (the “231 Decree”) has introduced in Italy the principle that companies are responsible for crimes committed by:

  • Individuals vested with powers of company’s representation, control, direction, or management;
  • Individuals subject to the authority or control by the above-mentioned individuals, including employees, consultants, non subordinate employees and whoever acts on behalf of the company.
  • As a result, a company may now be considered liable for crimes committed by individuals in the interest or to the benefit of the company (while crimes committed by individuals in their exclusive interest or in the exclusive interest of third parties do not trigger company’s liability). The company’s liability is separate and distinct from the liability of the individual who committed the crime.

Which Crimes Trigger Liability? Several (not just corruption!).

The 231 Decree lists a number of crimes for which companies may be liable, which include:

  • Corporate crimes;
  • Crimes against public administrations;
  • Crimes against the dignity of individuals;
  • Conspiracies and terrorism;
  • Crimes arising out of breach of laws protecting the environment and health and safety at work;
  • Crimes related to criminal associations;
  • Money laundering.

Which Sanctions Apply? Monetary and blacklisting sanctions.

If a company is found liable, the following sanctions may apply:

  • monetary sanctions up to a maximum amount of Euro 1,549,370.69 (and precautionary seizure of the price or profit arising from the crime),
  • blacklisting sanctions (applicable also as a precautionary measure), with duration between 3 to 24 months, which can consist of, inter alia, the prohibition to conduct the Business’ commercial activity, the prohibition to contract with the public administration, the prohibition to advertise goods or services, seizure, or the publication of the court’s decision (if a blacklisting sanction is applied).

Are There any Grounds of Exemption from Criminal Corporate Liability?  Yes!

A company is not liable pursuant to the 231 Decree if it proves that:

  1. The management has adopted and effectively implemented a so-called ‘Organizational Model’ in order to prevent the commission of the criminal offences listed in the 231 Decree by subjects acting on behalf of the company;
  2. The company has established an internal body (‘Compliance Committee’) entrusted with the task of supervising the proper functioning and update of the Organizational Model, as well as the actual compliance by all those who must abide by it;
  3. Crimes were committed by individuals vested with management powers who have fraudulently avoided compliance with the Organizational Model;
  4. The Compliance Committee has not omitted to perform, or negligently performed its supervision duties.
  5. This explains why companies operating in Italy typically devote substantial resources in the setting up of an Organizational Model.

How to Set up an Organizational Model?  Risk assessment, gap analysis, preventive measures.

In order to prepare an Organizational Model the following process is usually followed:

  1. Examination of areas of risk: on the basis of the company’s Organizational Model and relevant job descriptions, the risk of commission of each crime set forth in the 231 Decree is assessed.
  2. Analysis of existing procedures: all existing procedures and ethical principles are reviewed in order to identify procedures that may reduce the risk of commission of the crimes.
  3. Possible implementation of new measures: should the analysis of existing procedures lead to conclude that some of the risks are not properly reduced, new procedures should be implemented.

The Organizational Model must be Effective.  A compliance program on paper will not help!

Once a company has adopted an Organizational Model by means of a resolution of the Board of Directors, the company must ensure that it is effectively implemented, that employees and other individuals acting on behalf of the company are duly trained on the model and that any breach of the Model is sanctioned.

In particular, the appointed Compliance Committee must actively supervise the effective functioning and adequacy of the Model on an ongoing basis and in independent fashion. The Compliance Committee is generally in charge of:

  • Monitoring the activity carried out within the company and the areas considered at risk;
  • Assessment of the actual implementation of, and compliance with the Organizational Model;
  • Cooperation and consultation with the management as regards the application of disciplinary sanctions to employees in the event of breach of the internal procedures provided by the Organizational Model.

Legality Rating by the Italian Antitrust Authority: Is It Useful?

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“Not only must we punish corrupt companies but also encourage healthy businesses“. The statement released by Mr. Raffaele Cantone, Chairman of the Italian Anti Corruption Authority, summarizes the rationale underpinning the so called “legality rating”, i.e. a score that the Italian Antitrust Authority assigns to companies who apply for it. In fact, Law no. 62/2012, converting Law Decree no. 29/2012, requires the Italian Antitrust Authority to assign a score ranging from one to three “stars”, to any applying company who complies with a series of legal requirements (inter alia, the absence of criminal sanctions or preventive/precautionary measures against key personnel of the company, no judgments pursuant to Legislative Decree No. 231/2001, no breaches in the field of health and safety at work, and no definitive tax assessments against the company).

The instrument, available to entities generating a turnover in excess of Euro two million per year, is completely optional, but continues to be widely utilized. A statement of the Antitrust Authority shows in fact that, in January 2015, the Authority  received respectively 14% more applications than in the previous month and the trend seems to continue.

So, companies line up as schoolboys in order to show that they are worth a certain number of “stars” in an effort to demonstrate the soundness of their compliance program: is it worth it? To respond, we have looked into the benefits of the legality rating to understand the actual relevance of a practice that is becoming widespread. Below is a summary of the alleged benefits.

  • A new Regulation, developed by the Italian Antitrust Authority in collaboration with the National Anti Corruption Authority, entered into force on November 14, 2012, sets forth that companies benefitting from a legality rating are enrolled in a register of virtuous firms. Such registration is supposed tofacilitate relations with banks or the granting of public funding as well as the possibility to participate in public tenders.
  • The first example of a public procurement process taking into account the legality rating refers to postal services. The procurement documentation (Decision of December 9, 2014, published in the Official Gazette no. 1 of the January 2, 2015) stated for the first time that “for the public procurement of large size, the contracting authorities can evaluate the opportunity to give an additional and proportionate score to companies that benefit from a legality rating issued by the Antitrust Authority pursuant to §. 5 ter of Law-Decree no. 1 of January 24, 2012, or that have equivalent certifications issued to foreign firms from other agencies or public authorities”. For the first time, legality rating actually mattered as it gave a chance to companies to score additional points in public tenders.Some have criticized the use of a legality rating in this context, given that section 83 of the Italian Public Procurement Code (Legislative Decree no. 163/2006) requires that contracting authorities assess bidding companies on the basis of objective requirements only. It has been in fact argued that making reference to a legality rating is too discretionary. However, the Antitrust Authority, in opinion no. 163/2013, seemingly admits the possibility of using discretionary requirements, such as “the curriculum of the company, possession of licenses or quality certifications, availability of business assets, the providing of services or similar work, and in general, skills and references” as “factors that can be weighedas criteria for admission to tenders”.

In conclusion, if public procurement tenders give some weight to the legality rating, then obtaining it may actually be a good idea.

The risk is, as with any type of certification, that it will become a merely formal requirement, which does not attest the actual compliance efforts or a corporation’s culture.