2. 1 Case Studies on Types/Methods of Commercial Bribery in Europe and Italy Presentation by Raffaele Caldarone NCTM - Studio Legale Associato Italy

3. 2 Case study: the OECD Paris Convention of 1997 As said, most recent trends of prosecution of commercial bribery in Italy and Europe derive from the OECD Convention signed in Paris in 1997 The history of such Convention is a quite emblematic example of the interference between prevention of commercial bribery and instances originating from antitrust and international trade protection

4. 3 Case study: the OECD Paris Convention of 1997 The events begin twenty years earlier than the date of signing of the Convention, when the Foreign Corrupt Practices Act (FCPA) was enacted in the United States in 1977 In those years the wake of the Watergate scandal focused official and public attention on the prevalence of illegal political contributions and the usage of unrecorded “slush funds” by multinational corporations Such funds were expended to bribe foreign government officials overseas to secure lucrative business contracts A voluntary disclosure program implemented by the Securities and Exchange Commission (SEC) led to admissions by over 400 American corporations, including 117 Fortune 500 companies, of making payments totaling more than $300 million to foreign political parties and government officials

5. 4 Case study: the OECD Paris Convention of 1997 As a result of these disclosures, a widespread consensus developed within congressional and commercial arenas characterizing foreign bribery as harmful to the economic interest of US companies and developing nations Congress found that bribery of foreign officials not only obstructed market competition, directing contracts to inefficient businesses, but also threatened American corporate activities overseas, tarnished the image of America abroad and frustrated US foreign policy objectives The Foreign Corrupt Practices Act prohibits US corporations, and individuals acting on their behalf, from offering payments to foreign government officials for the purpose of obtaining or retaining business abroad

6. 5 Case study: the OECD Paris Convention of 1997 Additionally, the Foreign Corrupt Practices Act imposes recordkeeping and internal accounting control requirements on companies with securities registered under the Securities Exchange Act of 1934 The provisions of the Foreign Corrupt Practices Act have been construed broadly, often at the cost of predictability, with severe consequences resulting from their violation Under US general rules a corporation may be held criminally liable for violations committed by its employees or agents if they were acting (i) within the scope of their authority (ii) at least in part, with intent to benefit the business

7. 6 Case study: the OECD Paris Convention of 1997 Under the FCPA, the corporation can attempt to insulate itself from liability by creating a strong compliance program and enforcing it vigorously. The existence of an effective compliance program may persuade (but does not require) a prosecutor not to bring criminal charges against the corporation for its employee’s criminal act. In any event it still furnishes a potential defense for the company at the trial and will at least reduce the sentence, if any A corporation may be held liable for criminal acts committed within a subsidiary or division just as it would be for the acts of an individual agent. A parent has an obligation to supervise the subsidiary’s conduct and assure that it complies with all applicable law

8. 7 Case study: the OECD Paris Convention of 1997 Federal Sentencing Guidelines provide general rules on the content of compliance programs required under the FCPA They particularly focus on the importance of basic ethical principles which have to inspire the overall approach of a company to its business conduct and the relationship with intermediaries, professionals (lawyers, advisors) and commercial agents The latter indeed play, specially in international bribery practices, a critical role in keeping contacts between the corporate and the local officials such as allowing avoidance of disclosure of the acts of corruption through intermediation of undue payments as fee or commission remittances

9. 8 Case study: the OECD Paris Convention of 1997 Among others, crimes triggering such liability are (i) corporate crimes, (ii) crimes against the Public Administration (even if committed outside the US, under the FCPA), (iii) crimes connected to the terrorism and relevant financing and (iv) violation of rules for the prevention of accidents at work or related to the protection of industrial hygiene and health A corporation may be punished for criminal offences with financial penalties. It may be placed on probation for up to five years and subjected to onerous requirements regarding reporting and accounting such as to outside examinations. Furthermore it will be ordered to make restitution to the victims and face civil liability to the victims of the crime

10. 9 Case study: the OECD Paris Convention of 1997 Based on the FCPA US companies were then prevented, starting 1977, from conducting commercial bribery practices and corrupting public officials out of the US since they risked being sentenced in the US for violation of the Act On the other hand, all companies of other European and Asian countries continued practicing commercial bribery out of their domestic borders (specially in developing countries) since the behavior was not considered as a domestic crime if committed out of the national borders As a consequence of such unequal situation, where US companies were prejudiced by the unfair competition of other nationality companies, the US government exercised a huge diplomatic pressure on international trade organizations and in particular the OECD to force introduction into the legislation of all European and Asian participant countries of provisions designed to proscribe foreign commercial bribery and sentence it in the parent country at individual and corporate level

11. 10 Case study: the OECD Paris Convention of 1997 After twenty years from the introduction of the FCPA in the US, OECD Member States signed in Paris in 1997 the Convention to prevent international corruption The Convention provides that Member States (which include most of European and Asian countries) are required to introduce into their legislation provisions criminally sanctioning as a domestic crime the corruption committed by national companies or individuals out their home borders versus a foreign public official The crime is due to be punished both against the individual physically committing the violation and the advantaged legal person in the interest of which he may be operating Thus the conclusion of the OECD 1997 Paris Convention represents a typical example of how companies operate within international commercial bribery and the interferences existing between commercial bribery and trade competition such as the influence that such business issues may exercise on the prohibition of certain behaviors

12. 11 Case study: the sentence for commercial bribery of a major foreign company in Italy The second case this presentation will introduce is that of a major European multinational company, listed both at European stock exchanges and at the NYSE, that corrupted in Italy a number of top managers of a listed Italian company The Italian listed company was a major former government company, at present listed on the stock exchange and owned by the Italian Treasury a by an approximate 30% shareholding The Italian company was engaged in the purchase of a major power engine to build a turn-key power plant and had to set up a tender to select the supplier The foreign company corrupted the top managers of the Italian company who were responsible to issue specifications to qualify for the supply of the engine The purpose of the corruption was to allow that the tender specifications fitted exactly with the features of the engines produced by the foreign corrupting supplier

13. 12 Case study: the sentence for commercial bribery of a major foreign company in Italy The corruption was discovered thanks to authorities investigations and was recognized, by both Italian prosecutors and the Court who sentenced the case, as corruption of public officials Indeed, even though being the Italian company listed and held by private investors for circa 70%, the approximate Treasury 30% shareholding, the presence in the statutory auditors board of a representative of the Treasury Ministry and the fact that the company was engaged in the construction of a power plant due to serve the public interest led prosecutors and the Court to hold the corrupted managers as public officials As a consequence of the corruption, both the executives of the foreign company practicing the corruption and the foreign company itself have been subject to trial

14. 13 Case study: the sentence for commercial bribery of a major foreign company in Italy The sanction applied on a precautionary basis to the foreign company is the temporary prevention to deal with the Italian Public Administration The company tried to escape or reduce its precautionary sanction by paying a large indemnification (over EUR 180 mln.) to the company where the corrupted managers were acting However the Court rejected that the indemnification paid could be sufficient since it had been recognized only to the company who arranged the tender and not to third parties and the marketplace The precedent is quite significant from the perspective of the recognition of third parties and the marketplace as parties prejudiced by a case of corruption and illicit alteration of a tender for the supply of products, i.e. a case of commercial bribery

15. 14 Case study: the sentence for commercial bribery of a major foreign company in Italy The case is further significant since the Court established that a foreign company could be sentenced in Italy if the crime had been committed by its officers in the latter Country Additionally the Court decided that a company acting in Italy had to comply with Italian laws with respect to its organization event though originating from another Country where prescriptions of a similar nature were not existing Indeed, as previously shown, in Italy companies willing to insulate from liability deriving from crimes committed by officers in its own interest or advantage have to adopt a compliance program that in other European jurisdictions is not required The Court held that a foreign company willing to achieve said insulation has to meet such requirement when operating in Italy even though it not being required in the Country of origin

16. 15 Case study: the sentence for commercial bribery of a major foreign company in Italy Pursuant to the Italian Act on corporate liability deriving from crimes, compliance programs required to insulate companies from liability shall meet the following requirements:  identify activities where crimes may be committed  provide for specific protocols regulating the company’s decision making process and the implementation of decisions regarding the offences to be prevented  define rules for the management of financial resources appropriate to prevent offences  fulfill the duty of disclosure to the entity in charge of supervising the operation and observance of the Model  introduce an appropriate disciplinary system to sanction breaches of the provisions stated in the Model

17. 16 Case study: the sentence for commercial bribery of a major foreign company in Italy Guidelines issued by the major industry associations provide suggestions to the associated companies wishing to adopt their compliance program. They are based on the risk assessment and risk management processes, which are generally implemented by the companies and normally regard:  Identification of the risks concerning crimes that may be committed based on the features of the industry sector  Design of a preventive control system, realized through the construction of a suitable organizational system and through the creation of formalized protocols for risk sensitive activities  Implementation of a code of conduct and a disciplinary sanction system to be applied when the measures provided in the program are not respected, in order to preserve its effectiveness  Identification of the criteria for the selection of an internal body of control, endowed with adequate instruments, which is due to supervise the program