Market abuse: the dual-track system in Italy in the aftermath of Grande Stevens
The decision of the European Court of Human Rights in Grande Stevens & ors v Italy has given impetus for a radical rethink of the dual-track system in Italy for punishing market abuse. This article examines the double-jeopardy elements of the current system and proposals for reform.
In Italy there is a “dual-track system” (doppio binario) for the punishment of market abuse. Under the Italian Financial Services Act (IFSA)1 there are both criminal and administrative proceedings for the “same facts”:
(1) Article 185 IFSA provides for criminal sanctions, stating that imprisonment and a fine shall be imposed on “any person who disseminates false information or sets up sham transactions or employs other devices…likely to produce a significant alteration in the price of financial instruments” (there are also penal sanctions for accessory liability); and
(2) Article 187-ter IFSA provides for the application of pecuniary sanctions for primary liability “without prejudice to the penal sanctions applicable when the action constitutes a criminal offence” (Article 187-quater IFSA provides for an administrative sanction for accessory liability).
Grand Stevens – rules on substance over form
On 4 March 2014, the European Court of Human Rights (the ECtHR, or the Court) ruled in Grande Stevens & ors v Italy (the Decision)2 that the Italian law described above is not consistent with basic principles enshrined in the European Convention on Human Rights (the Convention) and the relevant Protocols, in particular: (i) the right to a fair trial (Article 6 §1 of the Convention); and (ii) the application of the ne bis in idem principle or double jeopardy (Article 4 § 1 of Protocol No. 7), concerning market abuse proceedings initiated by administrative and criminal authorities.3
These conclusions stemmed from the Court’s analysis of the nature of the sanctions imposed by CONSOB. The Court found that, notwithstanding that the CONSOB sanctions are named as “administrative”, they should be classed as criminal penalties4 given the punitive nature of the offences and the severity of the punishment.
In accordance with its consolidated case law,5 the ECtHR has followed a “substantive” approach by considering the nature of the sanctions imposed by CONSOB.6 This is in marked contrast to the approach taken by the Italian legal system, which tends to adopt a “formal” classification of sanctions.
Italian commentators have questioned whether the Decision may necessitate a rethink of the relationship between the two main categories of punitive sanctions recognised by our legal system (ie, the criminal and the administrative penalties), whose boundaries can be blurred.
Are the Italian rules unconstitutional?
The Decision has raised doubts about the constitutionality of double jeopardy in the Italian legal system. Article 117 of the Italian Constitution calls for Italian laws to comply with European rules. Therefore, non-compliance with the ne bis in idem principle may not only infringe the European regulatory framework, but also the Italian Constitution.
Indeed, in a dispute concerning the application of administrative sanctions following, and in addition to, criminal sanctions regarding the same market abuse infringement, the Italian Supreme Court has raised the possible unconstitutionality of Article 187-ter IFSA in light of both the Decision and the Convention being contrary to Article 117 of the Italian Constitution.
The Italian Supreme Court concluded7 that the question of the constitutional legitimacy of Article 187-ter IFSA was not manifestly unfounded and, therefore, put the case to the Constitutional Court. The hearing of the constitutionality issue is due on 16 March 2016.
Legislative intervention has started
Legislative change is afoot. The avoidance of duplication or the combination of criminal and administrative penalties for the same market abuse infringement is specifically provided for in Law No. 114 of 9 July 2015 (the Delegation Law), which entered into force on 15 August 2015 and which grants the Italian Government the power to issue legislative decrees of implementation of a number of European directives, including the New Market Abuse Directive. The deadline for the implementation of the New Market Abuse Directive expires on 3 July 2016.
In particular, pursuant to Article 11 of the Delegation Law (which provides criteria to be followed in the implementation of the New Market Abuse Directive), the avoidance of double jeopardy may be achieved by either allowing the application of one penalty only (the most severe one) or by instructing the Courts or CONSOB to take into account, when they are requested to intervene, the punitive measures already applied for the same conduct.
Conclusions
The Decision has significant ramifications for the Italian legal system not only in relation to market abuse, but also for infringements of law in general. A rethink of the categorisation of sanctions and the relevant application is required to ensure the proper protection of human rights.
In particular with respect to market abuse, the new approach is likely to be shaped by: (i) legislation which may avoid double jeopardy by ensuring a proper distinction between behaviours which may be punishable by administrative sanctions and more severe infringements which deserve criminal penalties; and (ii) the Constitutional Court, who will want to ensure that any new rules are consistent with Article 117 of the Italian Constitution along with relevant European legislation.
Footnotes
1. I-bis of Part V of Legislative Decree No. 58 of 24 February 1998.
2. Grande Stevens & ors v Italy – 18640/10, 18647/10, 18663/10 et al dated 4 March 2014.
3. The applicants, after being punished by the Italian Securities and Exchange Commission (CONSOB) with administrative sanctions, have also been subject to criminal proceedings.
4. As recognised by the ECtHR, the Italian legal system does not contain a provision similar to section 84 of the German OWiG or Article 79 of the Portuguese RGCO and provides for “undetermined pecuniary and non-pecuniary penalties, which are classified as administrative sanctions and applied by “independent” administrative authorities in inquisitorial, unequal and prompt proceedings”.
5. Note that the European Court of Justice declared that the sanctions applied by Member States pursuant to Directive 2003/6/EC, notwithstanding their qualification as “administrative”, must be regarded as “criminal” in accordance with the Convention, considering the nature of the infringements and the level of severity of the punishment (European Court of Justice, 23 December 2009, case C-45/08, Spector Photo Group NV & ors, § 42).
6. This approach is consistent with the ruling adopted, not only in other countries such as France, but also in relation to other Italian authorities such as the Antitrust Authority (Sentence of 27 December 2011, case No. 43509/08, Menarini Diagnostic s.r.l v Italy).
7. Order No. 1782 of 10 November 2014.
