New Obligations for Companies Under the Proposed CS3D
The proposed Corporate Sustainability Due Diligence Directive, so-called CS3D, may set new rules binding large EU or non-EU companies aimed at preventing adverse impacts on the environment and human rights resulting not only from their own operations, but also from those of their business partners.
CS3D has been criticized for its strong impact on the whole supply chain. While only large companies are in scope, vendors of such obligated entities will need to comply with such entities’ policies inspired by CS3D.
What Are the Proposed Obligations?
New due diligence requirements are supposed to be established by CS3D and may subsequently be implemented by each member state. According to the text under discussion, companies will have to identify, prevent, stop, mitigate and account for the adverse impacts on the environment and human rights caused by their activities. In addition, they will need to have a plan to ensure that their business strategy is compatible with limiting global warming to 1.5°C in line with the Paris Agreementand the climate neutrality goals set by Regulation (EU) 2021/1119.
Which Companies are In Scope of CS3D?
CS3D would apply to European companies that:
- have, on average, more than 250 employees and a global net turnover of more than EUR 40 million in the last financial year for which the annual accounts were drawn up;
- even if they do not meet the minimum thresholds, are the parent company of a group that had 500 employees and a global net turnover of more than EUR 150 million in the last financial year for which the annual accounts were drawn up.
It would also applty to third-country companies that:
- generated a global net turnover of more than EUR 150 million, provided that at least EUR 40 million of that turnover was generated in the European Union in the financial year preceding the last financial year, including turnover generated by third-country companies with which the company and/or its subsidiaries have concluded a vertical agreement in the Union in exchange for licensing rights;
- even if they do not meet the minimum thresholds mentioned in point (a), are the parent company of a group that had 500 employees and a global net turnover of more than EUR 150 million, of which at least EUR 40 million was generated in the European Union in the last financial year for which the annual accounts were drawn up, including turnover generated by third-country companies with which the company and/or its subsidiaries have concluded a vertical agreement in the Union in exchange for licensing rights.
When Will It Enter into Force?
CS3D is still under discussion. The proposal for the Directive was presented by the European Commission on February 23, 2022, and the Parliament adopted the amended text on December 14, 2023. The proposal must be formally approved by the Commission, the Parliament and the Council before it can officially enter into force.
The Data Act: a New European Regulation on Data Sharing in the EU
Today, January 11, 2024, marks the entry into force of EU Regulation 2023/2854, better known as “Data Act”.
The new regulation sets forth new rules on B2B and B2C data access and provides a regulatory framework for sharing data generated by the use of connected devices and related services. In addition, the Data Act contains measures to restrain economic operators from abusing contractual imbalances in data-sharing contracts.
The new regulation’s declared goals are to:
- stimulate a competitive and fair data market;
- foster data-driven innovation;
- boost data accessibility;
- make it easier to switch between data processing service providers;
- protect data from unlawful transfers;
- develop interoperability standards for data to be reused between sectors.
Art. 50 of the regulation provides that the new set of rules shall apply from September 12, 2025; however, certain articles, shall apply at a later stage.
Will the Sunshine Act and the Whistleblowing Act change life sciences companies?
Although not revolutionary, these two new pieces of legislation are certainly of great interest to life sciences companies operating in Italy. They may, in fact, entirely change the quantity and quality of information available on and to life sciences companies, and perhaps even impact the cultural landscape in which such companies operate.
–> INFORMATION IN: the Whistleblowing Act is designed to encourage a flow of information to the company;
<– INFORMATION OUT: the Italian Sunshine Act will ensure that interactions with HCPs or HCOs are publicly disclosed, which will generate information from companies out to the public.
THE SUNSHINE ACT.
- Not yet applicable. The Italian Sunshine Act (law number 62 of 2022) is not yet applicable because the website of the Italian Ministry of Health where data should be published is not yet ready.
- Aim. The purpose of the Sunshine Act is to enhance transparency of relationships between companies and healthcare operators. Also, in the intention of the legislator, it also aims at fighting corruption even though the subject matters of the disclosure are entirely legitimate transactions.
- Reportable interactions. Under the Sunshine Act, agreements and delivery of money, goods, services or other benefits to an healthcare professional (HCP) having a value above €100 or an annual aggregate value of more than €1,000 trigger the obligation to report the transaction. The threshold is higher if an healthcare organization (HCO) is involved, as the value must be above €1,000 individually or above €2,500 annually. Additionally, any agreements with HCPs or HCOs regarding the attendance to congresses, trainings, events, or any consultancy, research and teaching relationship must also be reported, as well as any equity or bonds in life science companies granted to HCPs or HCOs (even if granted for free) and any consideration for intellectual property licenses. Reporting must occur every 6 months and the information on the registry will be available for 5 years. Consent to disclosure by HCPs is (supposedly) implied.
THE WHISTLEBLOWING ACT.
- In force. The Whistleblowing Act (legislative decree no. 24 of 2023) is already in force for all companies to which it applies (including, but not limited to, life sciences’ companies). This means companies which have adopted a “231” model, as well as companies with more than 50 employees, or less if they are active in specific sectors.
- Aim. The purpose of whistleblowing legislation is to protect the reporting person by prohibiting any retaliation against him or her, while ensuring confidentiality and compliance with data protection legislation. This should encourage reports, also anonymous, on any illicit activity happening within or outside the company. Companies must appoint a specific body or person to manage the reports so that they can be properly investigated (when relevant), and feedback can be provided to the reporting person.
Both laws rest on the assumption that corruption is inherent in businesses, especially in life sciences’ companies, and should be unearthed, even in an industry that is heavily regulated, self-regulated, and closely monitored by regulators and authorities.
Will the Sunshine Act and the Whistleblowing Act change the perception of life sciences companies? Will their efforts in terms of transparency and accountability be rewarded with a more positive reputation? That’s hard to predict, and probably unlikely.
Life sciences companies must balance the tensions between health and profit, the needs of buyers, users and patients, their products’ innovation and safety. They must do that ethically and generally invest a lot of resources into their compliance efforts. The two new laws may further strengthen such commitment.
Quick Guide on Legislation In Force and Legislation Stalled
Just a quick blog post to align our readers on which legislation is in force and which is stalled at the moment:
- The Ultimate Beneficial Owners register (discussed here), which companies strived to populate by December 11, 2023, is currently on hold due to administrative litigation that currently blocks the application of the register.
- The European Regulation on Artificial Intelligence, which we already discussed here, is now final. It will enter into force in 2 years.
- Legislation on payback for medical devices will be scrutinized by the Italian Constitutional Court thanks to decisions of the Lazio Administrative Court issued on November 24, 2023.
- The Italian Sunshine Act (Law no. 62 of 2022), which we illustrated here, is in force but not yet applicable since the transparency website is not yet live.
- Next week the Whistleblowing Law (analyzed here and here) will be mandatory for all companies in scope.
- The Digital Services Act and the Digital Markets Act are in force.
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Corporate Liability Under Legislative Decree No. 231/2001: Latest Developments
Recently, the regulatory framework of administrative liability of entities for criminal offences has been partially amended, by (i) recognizing its central role within the framework of public tenders’ regulations, and (ii) expanding the catalogue of predicate offences (reati presupposto or 231 crimes).
- 231 Corporate Liability as Ground for Exclusion from Public Tenders
Legislative Decree no. 36/2023, i.e., the new Italian Public Tenders Code (“PTC”), distinguishes between causes of automatic exclusion (Section 94) and causes of non-automatic exclusion from public tenders (Section 95).
In case of:
- a criminal conviction or disqualification measure for the criminal offences listed under Section 94, paragraphs 1 and 2, of the PTC issued against an economic operator under Legislative Decree No. 231/2001 (Section 94, paragraphs 3, lett. a) and 5), or
- a disqualification sanction referred to in Section 9, paragraph 2, lett. c) of Legislative Decree no. 231/2001 (or of any other sanction entailing the prohibition to enter into agreements with public entities)
the sanctioned entity will be automatically excluded from the public tender.
Moreover, if a 231 crime is ascertained, or even only contested, then a “serious professional offence” is triggered, which may lead to a non-automatic cause of exclusion from the public tender (Section 98 of the PTC).
- New 231 Crimes
Following the PTC, Law no. 137/2023 increases the number of 231 crimes by providing for the inclusion of the following criminal offences:
- Obstruction of tender procedures (in Italian, “Turbata libertà degli incanti”, Section 353 of the Italian criminal code), i.e., hindering or disrupting a public tender or turning away bidders by violence, threats, gifts, promises, collusion or other fraudulent means;
- Obstruction of the choice of contractor procedure (in Italian, “Turbata libertà del procedimento di scelta del contraente”, Section 353-bis of the Italian criminal code), i.e., disruption of the administrative procedure by way of violence or threats, or by gifts, promises, collusion or other fraudulent means, in order to influence the manner in which the public administration chooses a contractor; and
- Fraudulent transfer of values (in Italian, “Trasferimento fraudolento di valori”, Section 512-bis of the Italian Criminal code), i.e., fictitious attribution of the ownership or availability of money, goods or other utilities for the purpose of avoid the application of the provisions of the regulation on asset prevention measures or smuggling, or of facilitating the commission of one of the offences referred to in Sections 648, 648-bis and 648-ter.
The novelties described above shows the Italian legislator’s increasing attention to the conduct of entities participating in public tenders, and will result in the need to review and update the 231 model already adopted by entities, in order to (i) provide for procedures to ensure correctness of the company’s conduct with specific regard to participation in public tenders, and (ii) take into account the three new 231 crimes.
Implementation of the “231” Compliance Model in the Pharma Industry: New Guidelines issued by the Italian Association of Pharmaceutical Companies
On September 5, 2023, the Italian Association of Pharmaceutical Companies (“Farmindustria” – https://www.farmindustria.it/) has issued guidelines to design an organizational model pursuant to the Legislative Decree 231/2001 in the pharmaceutical sector (“Guidelines”).
In particular, the Guidelines, by taking into account the main peculiarities of the pharma industry, seek to identify the typical activities that are most at risk for the commission of criminal offences, and provide detailed guidance about the main policies and preventive actions that should be carried out by companies in order to prevent their commission.
As expected, the highest risks concern relationships with public officials, which may lead to crimes such as corruption or fraud against the State, with significant advantages for pharma companies.
The Guidelines seek to drive the attention of companies involved in the pharma sector on the risks that are latent in the following areas:
- Relationships with healthcare professionals (“HCP”) and healthcare organizations (“HCO”): compliance programs should regulate activities of the key account managers and their bonuses, sponsorship of congresses, grants and donations to HCOs, gifts to HCPs, as well as other sponsorship or advertisement activities;
- Relationships with Public Authorities: many interactions with public officials may entail corruptions risks, such as, e.g., obtainment of Market Authorizations, price reimbursement negotiations with the Italian drug regulatory agency (AIFA – https://www.aifa.gov.it/), management of site visits and inspections, participation and execution of public tenders for the supply of drugs to HCOs;
- Relationships with private entities: relationships with suppliers providing services in the context of clinical studies, pharmacies, patient advocacy organizations, patients and “expert patients”, or management of patient support programs also need to be regulated.
The Guidelines also offer a complete set of policies and other preventive remedies that may be sufficient to prevent the envisaged criminal risks.
The Guidelines are a useful tool for pharma companies and no similar initiatives have been taken by other associations with regard to different industries and sectors. The Guidelines also constitute a benchmark for best practices that will be difficult to ignore.
Do you need help in designing or updating your company’s “231” compliance model? Do not hesitate to reach out!
231 organizational models and code of conduct: do companies need both?
Many Italian companies have equipped themselves with an organizational model under legislative decree 231 of 2001, as well as with a code of conduct. Are both needed and what is their relationship?
Light on such question has been shed by the Italian Supreme Court with a recent decision published on August 1, 2023, within a dispute where a third party claimed to have actionable rights on the basis of the provisions of the code of conduct.
The Court, while defining the code of conduct as an instrument of “preventive control of the correctness of the conduct of persons operating within and on behalf of the entity”, rejected the plaintiff’s claims on the sole basis of the interpretation of the provisions of the code of conduct. It added that “in companies, the Code of Conduct constitutes the necessary completion of the organization, management and control model of the entity, as a corporate document aimed at identifying, with reference to the ethics and values that inspire the business, the rights, duties and responsibilities of all those who participate in the business (employees and, where appropriate, external parties that have business relations with the companies)”.
In light of the above, it has been clearly confirmed as follows:
- the code of conduct complements the 231 organizational model;
- the provisions of the code of conduct must be interpreted considering the 231 organizational model; and
- the provisions of the code of ethics apply to all subjects falling within the scope of application of the 231 organizational model.
Therefore, the 231 organizational model and the code of ethics have a strong connection, they both have to be adopted and interpreted in light of each other.
AI and Healthcare: Recommendations by the Italian Data Protection Authority
The use of Artificial Intelligence in healthcare continues to grow and it is poised to reach 188 billion by 2030. It also raises many concerns.
The Italian data protection authority (Garante) has recently issued recommendations based on 10 points, which can be found here.
The Garante particularly insists on:
- Human in the loop: a human being must be involved in the control, validation or change of the automatic decision;
- No algorithmic discrimination: trustworthy AI systems should reduce mistakes and avoid discrimination due to inaccurate processing of health data;
- Data quality: health data must be correct and updated. Representation of interested subjects must correctly reflect the population.
- Transparency: the interested subject must be able to know the decisional processes based on automated processes and must receive information on the logic adopted so as to be able to understand it (easier said than done!). The Garante also requires that at least an excerpt of the Data Protection Impact Assessment is published.
Other recommendations are not surprising for anyone familiar with the GDPR:
- Profiling and decisions based on automated processes must be expressly allowed by Member State’s laws.
- The principles of privacy by design and privacy by default obviously play a big role in healthcare AI systems.
- Roles of controller and processor must be correctly allocated: in particular, the public administration must ensure that external entities processing data are appointed as data processors.
- A Data Protection Impact Assessment must be carried out and any risks must be evaluated.
- Integrity, security and confidentiality of data must be ensured.
Striving for genuine transparency in connection with very complex and rapidly evolving algorythms is not going to be an easy task for the data controller. Similarly, understanding how AI works in a healthcare setting is not going to be simple for patients.
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