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Italy: Stepping Up To Give Corruption The Boot

New anti-corruption measures will help keep everyone on their toes

Anti-corruption laws are currently in vogue in many countries around the world, and for good reason. Corruption is insidious, coming on gradually with a cumulative effect that reduces both domestic and foreign economic participation, resulting in stagnation or even decline. Corruption can operate at the most basic level, a payoff here or a free vacation there to secure a contract, or rise to the level of the truly epic, like so-called state capture.

You'll never find a confident, innovative, high-functioning economy—one that works for people at every level of society—that is too deeply mired in corruption. More and more governments are waking up to this, including those in old-line Western nations. France recently passed its Sapin 2 anti-corruption law, a vigorous update to an already existing law. And Italy has done the same, with a new addition to existing statutes that warrants close attention from any firm with dealings in Europe's scenic boot.

Rome wasn't built in a day
Law No. 179/2017 came into effect on December 29 of last year. It's primary anti-corruption thrust is whistleblower protection: specifically, protections for whistleblowers in the private sector. Initially, only whistleblowers in the public sector had explicit protections under Italian law. Later came protections for those in banking and finance. But to fully understand Law No. 179/2017 it helps to understand its most important legal ancestor: Legislative Decree No. 231/2001.

Decree No. 231 came into effect in 2001. For the first time in Italian law, companies could be held liable for crimes carried out on their behalf and in their interest by directors, executives, subordinates, and authorized agents. Crimes included money laundering, misappropriation of funds, fraud, bribery, and market abuse. Penalties included bans from doing business or contracting with the state, the suspension or withdrawal of licenses and permits, the confiscation of profits, and fines of up to €1.5 million.

For companies to avoid liability under Decree No. 231, those accused had to be acting in their own interest and not that of the company. Importantly, companies could also avoid liability if they already had a compliance program designed to prevent the criminal conduct in the first place. The compliance program had to identify risk areas, outline procedures for regulating the decision making process in those risk areas, create obligations for reporting to a compliance officer, and install disciplinary measures for violators.

Criminal courts were given the final authority to determine whether or not a company's compliance program was sufficient for the task at hand, and therefore whether or not the company would be held liable for the actions of its agents. Decree No. 231 never mandated the creation of a compliance program. Instead, it was left to companies to read between the lines and do what they thought was in their best interests.

Ask not for whom the whistle blows 
From Decree No. 231 all other Italian anti-corruption law of note flows, including whistleblower protections. Whistleblowers, of course, can be of immense help in surfacing misconduct. Governments trying to crack down on corruption are wise to guarantee protections, as well as make these protections public and explicit, as fear of retaliation can keep these key insiders quiet.

Law No. 190/2012 provided protection for civil servants who stepped up to report misconduct. European Directive 23/2013, as put into effect by Italy, extended protections to whistleblowers in the banking and financial sectors. Law No. 179/2017 extends whistleblower protection to the rest of the private sector, though it still doesn't require the creation of either a formal whistleblower protection program or a compliance program.

Back to reading between the lines. Law No. 179/2017 does set out what it thinks a good whistleblower protection scheme in a company's already existing organizational and management model should look like:

  • To protect a whistleblower's identity there must be more than one whistleblower channel, and at least one whistleblower channel must be computerized.
  • Retaliating or discriminating against whistleblowers is strictly forbidden, and the policy against such action must be made clear in company policy.
  • There must be disciplinary measures in place for those who retaliate or discriminate against whistleblowers, as well as disciplinary measures for those who intentionally file false or unsubstantiated reports of violations.

A loophole of sorts does exist in Law No. 179, but it's not one companies should be in a hurry to exploit. A technical reading leaves companies the option of excluding contractors and other external consultants from whistleblower programs. But in an age of increasing reliance on contractors to do much of a company's day-to-day work this would be unwise.

It's far better a company hears of misconduct first through its own channels, even if the situation does end up eventually being escalated to a regulatory body. Self reporting misconduct could even be seen as a show of good faith to regulators. Less cynically, the problem may simply be better resolved at the company level. In the fight against corruption the best resolution is what matters most, after all.

Better late than never
When it comes to corruption, perception can be reality. A country that's perceived as corrupt will not only suffer from an internal lack of participation but also an external one. On Transparency International's most recent Corruption Perceptions Index, Italy ranks 54 out of 180 countries. France comes in at 23, the United States at 16, and the UK at eight.

Not having a law like Decree No. 231 on the books until 2001 explains, at least in part, Italy's less-than-stellar transparency ranking. But in fairness, it should also be made clear that while the country established its Anti-Corruption Authority in 2012, the new agency was only provided with enough personnel to carry out its mandate in 2014. Most importantly, since 2001 Italy has made a serious, sustained effort to catch up to its Western counterparts. Back to that Corruption Perceptions Index, Italy ranked 72 in 2012, versus 2017's ranking of 54: a testament to its sustained anti-corruption effort.

As a compliance officer in an Italian enterprise financial firm, you don't have to be an expert at reading between the lines to realize the importance of having an organizational and management model in place per Decree No. 231. Nor do you have to be similarly literate to realize the importance of incorporating whistleblower protection into your existing program per Law No. 179. A recent high-profile case in Milan involving Lidl Italia, a grocery chain, put four offices under government management while investigators pursue possible links to the Laudani crime family: made possible because Italy recently amended its Anti-Mafia Code. A new power gives the government the ability to put a company in judicial administration for up to two years in the case of mafia infiltration. A compliance program that provided a whistleblower system might have helped avoid this obviously uncomfortable situation for Lidl Italia.

Finally, global operators take note: Decree No. 231 holds for you, as well. "As interpreted by Italian case law, Decree No. 231 applies to foreign companies operating in Italy even if the firm has no office or branch situated in Italy." So says Milan-based Francesco Falco, a senior associate at the international law firm Paul Hastings. "And if you have a compliance program already in place, check to make sure it complies with the requirements set out in Decree No. 231. For example, the definition of public official under Italian law appears to be broader than in other countries. Do your due diligence."

Having these compliance programs in place is no guarantee of not being held liable for misconduct, of course, but they can go a long way towards leniency or outright exculpation in matters of misconduct. Remember, these matters are all ultimately resolved in court on a case-by-case basis. Judges are people, too, and people can be swayed. Perception counts. So ask not for whom the whistle blows. If you don't have a proper compliance program in place, it may someday be blowing for thee.

StarCompliance would like to thank Francesco Falco for contributing to this piece. Francesco is a senior associate in the litigation practice of Paul Hastings and specializes in civil, commercial, and insolvency law. He is based in the firm’s Milan office.

To learn how StarCompliance can help your enterprise financial firm get a proper compliance program in place, book your free software demo now.

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