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Consob sanction proceedings – The Court of Justice on the right to remain silent

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11 February 2021

Individuals who refuse to provide financial market authorities with answers that may establish their liability and trigger administrative sanctions of criminal nature cannot be punished.

In Case C-481/19, on 2 February 2021, the Court of Justice of the European Union issued its judgement on the preliminary ruling of the Italian Constitutional Court on the interpretation and validity of the EU rules and the Italian Financial Code (the so-called Testo Unico della Finanza) which impose on Member States the duty to sanction violations of the obligation to cooperate with the authority in charge of market surveillance in administrative proceedings which may lead to the imposition of a criminal penalty concerning insider dealing and market manipulation. With the aforementioned judgement, the Court of Justice stated that the sanctions for failure to cooperate with the Supervisory Authority cannot go so far as to allow sanctions to be imposed on those who decide not to answer questions from the authority from which a substantially criminal liability may emerge.

Introduction

In Case C-481/19, the Court of Justice of the European Union (CJEU) ruled on the question referred by the Italian Constitutional Court on the interpretation and validity of Article 14(3) of Directive 2003/6/EC and Article 30(1)(b) of Regulation (EU) No 596/2014, transposed in Italy by Article 187 quinquiesdecies of the Italian Financial Code. These provisions impose on Member States the duty to sanction violations of the obligation to cooperate with the authority in charge of market surveillance in administrative proceedings concerning insider dealing and market manipulation. In particular, the Constitutional Court asked the CJEU whether these provisions could be interpreted in a manner consistent with the right to remain silent under Articles 47 and 48 of the Charter of Fundamental Rights of the European Union.

Factual background

The case that led to the request for a ruling by the Court of Justice concerns proceedings brought by the Italian financial markets surveillance agency (Consob) for insider dealing and for the unlawful disclosure of insider information. In addition, Consob imposed a fine for violation of Article 187 quinquiesdecies of the Italian Financial Code because the sanctioned person repeatedly postponed the date of the hearing that he had been summoned to and because he refused to answer the questions that were put to him when he did appear at the hearing.

The opinion of the Advocate General

In order to understand the scope of the judgment, it is particularly relevant to consider the opinion delivered by the Advocate General of the CJEU on 27 October 2020. According to the Advocate General, also in the light of the Grande Stevens v. Italy judgment of the European Court of Human Rights (ECtHR), the administrative proceedings for the suppression of insider dealing and market manipulation offences, as outlined by the Italian Legislator, could result in administrative sanctions of a substantially criminal nature. This circumstance justifies for natural persons the application of the right to remain silent as interpreted by the ECtHR. In particular, the Advocate General, recalling the Corbet v. France judgment of the ECtHR, deems that there is a violation of Article 6 of the European Convention of Human Rights ) – and therefore the breach of the right not to self-incriminate – whenever forced statements concerning facts have influenced the reasoning of the decision taken or the sanction imposed as a result of a criminal proceeding. In conclusion, the Advocate General proposes the Court to interpret and apply the above provisions in order to guarantee the right to remain silent. More precisely, in the Advocate General’s view, those provisions are compliant with EU law provided that they shall be interpreted as not requiring Member States to punish natural persons who refuse to answer questions put by a Supervisory Authority which could establish their responsibility for an offence liable to incur administrative penalties of a criminal nature.

The judgement of the CJEU

The CJEU essentially transposed the arguments of the Advocate General and held that Article 14(3) of Directive 2003/6/EC and Article 30(1)(b) of Regulation (EU) no. 596/2014 must be interpreted as allowing Member States not to punish natural persons who, in an investigation carried out in respect of them by the competent Authority under that directive or that regulation, refuse to provide that authority with answers that are capable of establishing their liability for an offence that is punishable by administrative sanctions of a criminal nature. More precisely, the CJEU seems to state that the right to remain silent shall be respected not only in administrative proceedings of a substantially criminal nature, such as the one brought by Consob on market abuse in this case, but also in the context of proceedings of the same Supervisory Authority which do not involve criminal sanctions. That is because, under national law, evidence obtained in the context of such proceedings could be used in criminal proceedings against the same person in order to prove the commission of a criminal offence.

Conclusions

The decision of the CJEU seems to take a further step forward in assimilating some of the Consob sanctioning proceedings to substantially criminal proceedings. On one hand, the CJEU confirms the well-established interpretation that sanctions for market abuse, as implemented in Italy, are substantially criminal in nature. On the other hand, it affirms that sanctions for non-cooperation with the Supervisory Authority cannot go as far as to allow sanctions to be imposed on persons who decide not to answer the Authority’s questions from which substantial criminal liability for market abuse may emerge. In addition, the CJEU seems to extend the applicability of the right to remain silent to all Consob proceedings whose evidentiary findings could be relevant in criminal proceedings brought by the judicial Authority against the same person.