Draft law: obligatory nature of the 231 Model

Draft law no. 726 (the “DL”), which introduces significant changes to Italian Legislative Decree no. 231/2001 (the “Decree”) governing administrative liability for legal persons, companies and associations, including those not recognized as a legal entity (“Entities” or individually the “Entity”), is currently being examined by the Justice Commission of the Italian Senate.

The administrative liability of Entities

As is known, for the first time in our legal system, the Decree introduced administrative liability for Entities for certain offences committed in their interests or to their benefit by individuals occupying a senior position, or individuals who are subordinate to those occupying senior positions, within said entities.
The offences are compulsorily listed in the Decree, and the list has gradually grown over the years to include the following offences, among others: offences against the public administration, computer-related offences and the unlawful processing of data, corporate offences, offences committed for the purposes of terrorism or organized crime, manslaughter and serious personal injury or grievous bodily harm committed in breach of the laws and regulations on health and safety at the workplace, environmental offences, money laundering offences, the receipt and use of money, assets or benefits of unlawful origin, and offences against industry and trade.

There are many different penalties that may potentially be applicable in the event of a breach of the provisions contained therein (and, therefore, in the event that one of the offences provided for by said legislation is committed), and they may entail the application of the following:

– a quota-based financial penalty, which could entail a financial disbursement for the Entity ranging from a minimum of 25,800 euros to a maximum of 1,549,000 euros;
– a prohibitory penalty, such as (i) prohibition from carrying out the working activity, (ii) the suspension or revocation of authorizations, licenses or concessions, (iii) prohibition from entering into contracts with the public administration, (iv) exclusion from incentive schemes, grants and subsidies, and (v) prohibition from advertising goods or services;
– ancillary penalties, such as the publication of convictions and the confiscation of sums equivalent to the value of the profit obtained from the criminal offence.
In order to avoid incurring liability, the Entity must demonstrate that (i) it has adopted and effectively implemented a valid organization, management and control model (231 Model) aimed at preventing the commission of the offences listed above, and (ii) it has established a supervisory board (“SB”) responsible for ensuring compliance with the 231 Model. This board must function correctly and regularly, and supervise correctly.
Time and time again, case law has established the need for companies to have a 231 Model, even if it is not currently obligatory, in demonstration of the importance that it is taking on within the corporate compliance system.
As stated in the Senate’s announcement of 30 July 2018, the 231 Model consists of a combination of various elements (organizational and procedural arrangements for safety, control and support, and codes of conduct) that make up a proper management system aimed at preventing corporate risks. Its adoption brings with it improvements in the effectiveness and transparency of the Entity’s operations.

The obligatory nature of the 231 Model

The intention of the DL is to make the 231 Model and SB obligatory for certain categories of Entities.
In particular, this includes corporations and consortiums which have reported, even just on one of the last three balance sheets,
(i) total assets of at least 4,400,000 euros, or
(ii) revenue from sales and services of at least 8,800,000 euros.
Such Entities must also file both the decision by which the SB is appointed and the decision by which the 231 Model is approved with the Chamber of Commerce within 10 days from when they are adopted, respectively. If they fail to comply, obliged companies are ordered to pay an administrative penalty of 200,000 euros.

Conclusions

If the DL is approved at the end of the parliamentary process, then what has until now been a right left to the discretion of individual entrepreneurs will become an obligation. In fact, with this legislative intervention, the system provided for by the Decree will be strengthened, and companies that have still not complied with it will become obliged to do so. Consequently, the number of Entities required to prepare 231 Models will inevitably increase.