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Thursday
Jan112018

Sillaman and Bernardi: Italy steps up whistleblowing regulation

Since 2001, private Italian companies have been encouraged -- through legislative initiatives -- to adopt and implement robust compliance programs. Legislative Decree No. 231 of June 8, 2001 (commonly referred to as “Law 231”) allows private companies that chose to adopt specific compliance programs and mechanisms to avoid corporate liability where certain offenses are committed in the interest of the corporation by its directors or employees. 

One notable absence to the Law 231 regime, however, was that it did not contain whistleblower protection provisions. A new law that entered into force in Italy in December 2017 fills this gap, and through its adoption demonstrates the increased influence that social media and public discourse can have on legislative activity.

Italy’s 2012 Anti-Corruption Law (190/2012) introduced a first set of rules on whistleblowers, but they only applied to employees in the public sector. Under this law, public employees could not be dismissed, sanctioned, discriminated against or face retaliation when reporting illegal practices within the public sector. The 2012 Anti-Corruption Law also required public administrations and state-owned companies to adopt internal whistleblower protection measures, including the preservation of the whistleblower’s identity.

Italy adopted additional bills relating to whistleblowers between 2015 and 2017, mostly in view of implementing European Union directives, but these were focused on whistleblowers in select private sectors, including banks and insurance companies.

In January 2016, the Italian Parliament’s Chamber of Deputies adopted a draft bill to introduce whistleblower protection provisions into Law 231, but the Parliament’s second chamber (the Senate) did not appear eager to discuss it.  It was following these legislative roadblocks that a social media campaign in Italy began to encourage legislative change.

In July 2016, Transparency International Italia launched a public campaign (#vocidigiustizia, literally #voicesofjustice) to move the approval process forward. It was after a second campaign (#fuorilavoce, #raiseyourvoice) and the collection of more than 69,000 signatures that the Senate finally approved Law 179/2017, which aims to (i) strengthen the protection of whistleblowers in the public sector, and (ii) introduce a general set of whistleblower protection provisions in Law 231. 

The new law was approved on November 15, 2017, and entered into force on December 29, 2017.

With regards to the public sector, Law 179/2017 provides that:

  • Employers cannot adopt retaliatory measures (including professional transfers or demotions) against employees reporting illegal practices to the relevant internal anti-corruption officer, the Italian Anti-Corruption Authority (Autorità Nazionale Anticorruzione) or the judiciary
  • When faced with an employee’s claim of retaliation, employers have the burden of proving that the measures taken against the whistleblower were adopted for reasons other than the whistleblowing, and
  • The Anti-Corruption Authority is vested with the power to sanction non-compliance with the provisions applicable to the public sector (including sanctioning anti-corruption officers that fail to follow up on the whistleblowing with a fine ranging from 10,000 to 50,000 Euros).

The above protections apply not only to public entities and state-owned companies, but also to private companies providing goods and services to such public sector or state-owned entities.

Notably, Law 179/2017 also amended Law 231 to require private companies having adopted corporate compliance programs to include in these programs:

  • Rules allowing employees to internally report illegal practices without disclosing their identity
  • A prohibition on adopting retaliatory measures against whistleblowers (again, putting on the employers the burden of proving that the disciplinary measures adopted are unrelated to the whistleblowing), and
  • Sanctions to both discourage violations of the rules protecting whistleblowers and discipline employees making intentionally false or grossly negligent reports.

Despite the Law’s advancements in whistleblower protection, there remain certain structural elements in Italy that could impact whether these provisions will result in an increase in internal complaints.  Indeed, the law does not introduce any incentives to whistleblowers (such as financial incentives), who must also bear the legal fees and costs of the litigation originating from the whistleblowing. 

Moreover, while Law 179/2017 reinforced the provisions aimed at preserving the identity of the whistleblower, it does not guarantee anonymity in all judicial proceedings arising from the whistleblowing. 

Finally, despite the fact that many large Italian companies have adopted (and widely publicized) their Law 231 compliance programs, Italian companies are not mandated to adopt compliance programs under Law 231. As such, it is likely that whistleblowers reporting misconduct within small and medium enterprises not having any ties with public entities will still not benefit from whistleblowing protection.

Certainly, Law 179/2017 represents a milestone in the protection of Italian whistleblowers and is an example of how a motivated public can influence the actions of legislators. That said, its impact on the frequency with which complaints are reported within Italian companies remains unclear and will be worthy of watching in the years to come.   

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Bryan Sillaman, pictured above left, is a partner at Hughes Hubbard & Reed LLP and a member of the firm's Anti-Corruption & Internal Investigations practice group. He's currently based between the firm's Paris and Washington offices. He previously served as an attorney in the Division of Enforcement of the U.S. Securities and Exchange Commission, where he conducted several FCPA investigations. He can be contacted here.

Arnaldo Bernardi, right, is an associate in Hughes Hubbard's Paris office and a member of the firm's Anti-Corruption & Internal Investigations practice. He holds an LLM from New York University School of Law in International Regulation and Litigation, and a JD from Università Degli Studi di Milano. He can be contacted here.