Having focused on the enforcement of sanctions by the United States, United Kingdom, the European Union, Germany, and France in the past weeks, we continue our overview with the current enforcement practice of the Italian authorities and the changes to be expected following the newly announced G7 Enforcement Coordination Mechanism.
- What are the recent sanctions enforcement trends in Italy?
While there is minimal public information available on Italian enforcement activity, it is clear to us that enforcement activity is increasing. For instance, there is no publicly available information on dawn raids carried out by the Italian Authorities at companies to check compliance with EU sanctions law, but we know from experience that raids occur.
Based on our experience, Italian Customs Authorities are particularly active in ensuring that export/import transactions involving controlled goods and/or sanctioned countries are carried out in compliance with applicable laws and regulations.
In particular, the Italian Ministry of Foreign Affairs performs periodic audits and inspections after the granting of export/import licenses to verify that obligations set forth by EU and Italian law, as well as conditions established in the relevant licenses, are duly complied with. Audits and inspections involve at least 10-15 companies per year.
We are aware of various seizure orders concerning items to be exported to Russia. In addition, in implementation of the asset freezing measures established by EU Regulations, the Italian Tax Police have seized a number of real estate properties, yachts, jets, luxury cars and companies owned or controlled by EU designated persons for a value of approximately EUR 2.7 billion. We expect enforcement of the Russia sanctions to continue to increase.
- What are the maximum penalties for violations?
Penalties for the breach of export/import control legislation and sanctions law include both administrative and pecuniary sanctions. Administrative sanctions may result in the application of pecuniary fines up to EUR 500,000, confiscation of the goods unlawfully exported/imported, and/or suspension or revocation of licenses and other permits held by the company. Criminal penalties, which can be imposed for willful violations, may include imprisonment up to 6 years and/or criminal pecuniary fines up to EUR 250,000.
Also, it should be noted that, pursuant to Italian Legislative Decree No. 231/2001 on corporate liability (“Law 231”), companies may be held directly liable for certain crimes committed on behalf of, or for the benefit of, the company by individuals representing or managing the company. Although criminal offences concerning the violation of export/import control legislation and sanctions law are not specifically listed in Law 231, these types of offences might still trigger the liability of the company in the event a competent court establishes that the relevant conduct has been intentionally perpetrated by three or more individuals on behalf of or for the benefit of the company (so-called “conspiracy”). In such a case, the relevant company could be sanctioned with pecuniary fines (up to EUR 1,5M, which may be increased under specific circumstances) and other restrictive measures that might limit the company’s business (e.g. suspension or revocation of the company’s authorizations, licenses or permits which have been instrumental in committing the crime, prohibition to enter into contracts with the public administration, prohibition to advertise the company’s goods and/or services, and, in the most serious cases, prohibition on conducting the company’s business). Corporate liability under Law 231 may be avoided in the case the company has adopted and effectively implemented, before the perpetration of the relevant crime, an Organization, Management and Control Model pursuant to Law 231 aimed at preventing and detecting the commission of such crimes — in other words, a robust export controls and sanctions Internal Compliance Program (“ICP“).
- Is there a mechanism by which countries can submit a voluntary self-disclosure of possible violations to mitigate penalties?
No. Under Italian law, there is no obligation to notify breaches of export/import control legislation and sanctions law to the competent Authorities, nor a specific process for making a voluntary self-disclosure (“VSD”), either formally or informally. Also, under Italian law, filing a VSD would not have the effect of avoiding liabilities or penalties resulting from a violation of export controls and sanctions. No leniency program is envisaged for breaches of export controls and sanctions.
- What do you think the G7 Enforcement Coordination Mechanism means for Italy?
The G7 Enforcement Coordination Mechanism will allow the Italian Government to benefit from greater collaboration with its international partners in achieving the shared objective of preventing, detecting, and responding to evasion and circumvention of Russian sanctions. From a practical standpoint, it is likely that the Enforcement Coordination Mechanism will result in an increase in the number of enforcement actions in Italy and in the efficiency of investigations due to the intensified flow of information between enforcement agencies.
- What is one thing that you would recommend companies do now to get ready for increased enforcement in Italy and increased coordination with the other G7 members?
We would recommend adopting an ICP setting forth detailed internal protocols and procedures aimed at preventing potential breaches of export/import control legislation and sanctions law, including carrying out periodic export/import control and sanctions trainings for employees. An ICP should of course be tailored to the specific company’s characteristics and business (e.g. the size of the company, the goods in question and the markets in which the company operates).
