ECN+: a Reform which Changes the Rules of the Game

Italy has just enacted the Legislative Decree implementing the ECN Plus Directive so providing the Italian Competition Authority (ICA) with increased enforcement powers. The following sections provide a first overview of the main novelties which include sanctions to natural persons for breach of procedural duties as well as the possibility for the ICA to inspect private houses and premises. Companies will also be subject to higher fines for procedural misbehaviour and can, under certain conditions, directly respond for antitrust violations committed by the association to which they belong. Companies are therefore urged to implement and strengthen their compliance programme and ensure that members of their governing bodies and staff abide with it.

On 29 November 2021 the Italian Government adopted Italian Legislative Decree no. 185 of 2021  (the “Legislative Decree”) implementing Directive (EU) 2019/1, known as "ECN+", aimed at harmonising the tools and powers at the disposal of the competition authorities of the Member States and empowering them to be more effective enforcers.

The Directive was published on 14 January 2019 and entered into force on 3 February 2019. Albeit with some delay, Italy is among the first countries to implement the Directive at national level, which will enter into force on 14 December 2021 and will result in changes to the Italian Competition Law (Law No. 287 of 1990).

The first paragraph of this article contains an overview of the novelties introduced by the Legislative Decree while the second paragraph focuses on key aspects marking a significant change compared to the previous state of the law. 

What does it entail for the Italian Competition Authority?

The Legislative Decree sets forth a very articulated set of provisions, which to some extent had already been introduced into the system by means of soft law acts, resulting in a thorough revision and/or integration of the Italian Competition Law with regard to a number of aspects, including:

  1. The consolidation of the guarantees of ICA’s independence and the use of its financial resources thereby ensuring, for instance, that the ICA’s members and staff are able to perform their duties and to exercise their powers independently from political and other external influences, and that they are subject to procedures that ensure that, for period of three years after leaving office, they refrain from dealing with enforcement proceedings that could give rise to conflicts of interest (Article 10, paras 3 and 7[1]).
  2. The power to gather any relevant evidence (e.g., books and other records related to the business irrespective of the medium on which they are stored), also taking into account new digital technologies (Article 12 para. 1-bis), the power to define the priorities of its action and to that end reject complaints on the grounds that the ICA does not consider such complaints to be an enforcement priority (Article 12 para. 1-ter).
  3. More effective investigation tools, including the possibility for the ICA to conduct unannounced inspections at premises, including  the homes of managers, directors and other members of staff of the companies or associations of undertakings involved in the investigation; to continue making searches for information and the selection of copies or extracts at the premises of the national competition authorities or at any other designated premises; summon any representative of an undertaking or association of undertakings, any representative of other legal persons, and any natural person, where such representative or person may possess information relevant for the application of Articles 101 and 102 TFEU, to appear for an interview.
  4. Effective decision-making tools in relation to interim measures and commitments (Articles 14-bis and 14-ter). Indeed, with regard to both interim measures and commitments, the Legislative Decree brings into law a number of detailed procedural rules which were formerly part of the ICA’s consolidated practice and reflected in two Communications setting forth the ICA’s Guidelines. For instance, it is now specified that interim measures may be applied until the final decision and the ICA has to inform the other National Competition Authorities ("NCA") of the measures taken. Furthermore, with regards to the commitments, it is clarified that the ICA shall assess their suitability after consulting market operators.
  5. Significant strengthening of the sanctioning power in relation not only to undertakings and associations of undertakings (up to 1% of the total global turnover) but also to natural persons (ranging from €150 to €25,823) to encourage fair and full cooperation (Article 14 paras. 5 and 7) and ensure a high deterrent effect against antitrust infringements (Article 15)
  6. Introduction of effective and dissuasive periodic penalty payment for non-cooperation with ICA during the investigation: up to 5% of the average daily turnover achieved worldwide during the previous business year for each day of delay on undertakings and association of undertakings (Article 14, para 6) and  from €150 to €500 for each day of delay imposed on legal persons (Article 14, para 8).
  7. Enhanced coordination between the ICA and the European Commission in the application of leniency programmes at the national and EU level aimed at encouraging companies to report the existence of illegal cartels by submitting evidence (Articles from 15-bis to 15-septies), also when disclosure of the company's participation in a secret cartel would expose its employees  to criminal proceedings. In this regard, a new ground excluding criminal liability has been introduced for natural persons in cases where the conduct infringing competition law constitutes also a criminal offence (Article 31-quater). Also, as in the case of interim measures and commitments, the Legislative Decree incorporates into the National Competition Law a number of rules previously set forth in the relevant ICA’s Communication.
  8. Closer cooperation with the NCAs in relation to the notification, cross-border investigations and enforcement of decisions issued under Articles 101 and 102 TFEU (Articles from 15-octies to 15-duodecies).
  9. An entirely new mechanism for interrupting the time-barred period for the entire duration of the investigation proceedings pending before another NCA or the European Commission; suspension during the pendency of a judicial appeal In any case, the time-barred system to the European one, i.e. overall time limit of 10 years (Article 31-bis)

What should you watch out for?

 If you are a company
  1. Be aware of what undertaking a decisional role (but not only) within trade associations entails

The new legislation reflects the increased attention we have been witnessing in recent years towards trade associations by competition authorities. The intervention in this area is twofold:

  1. On one hand, the potential amount of the antitrust fine has been significantly increased, such as to meet the European one. The ICA moved from a calculation method based on the total value of the membership contributions paid by their members (usually very limited) to the provision of a cap of 10% of the sum of the total worldwide turnover of each member active on the market affected by the infringement of the association concerning the activities of its members (i.e., the vast majority of cases). Taking into account that, in the event that the association is not solvent, the latter is obliged to call for contributions from its members to cover the amount of the fine. That means that now each member company could be potentially exposed for the association’s infringement just as it would be for its own (within the limit of 10% of the total worldwide turnover).
  2. On the other hand, in order for the payment of the fine to be guaranteed, the Authority may order the payment directly from the undertaking whose representatives were members of the association's decision-making bodies at the time the decision infringing competition law was made. Only if this is unsuccessful, may the Authority require payment of the amount of the fine still due from any member of the association which was active on the market on which the infringement took place. However, payment may not be required from undertakings which prove that they did not implement the decision of the association and that they were either unaware of its existence or actively dissociated themselves from it before the investigation began.

This provision is certainly a deterrent to assuming decision-making roles in trade associations.

  1. Increased costs for infringement of competition law 

The tightening of the sanctioning powers vis-a-vis companies has led to:

  1. Significantly higher fines for lack of cooperation during the investigation: up to 1% of the total global turnover plus a periodic penalty payment up to 5% of the average daily turnover achieved worldwide during the previous business year for each day of delay (Article 14, para 5).

There is therefore an increase in the potential fine for non-compliance with a request for information and for documents submission (also during dawn raids) (the statutory fine previously imposed amounted to a maximum of € 25,823  in case of refusal and omission and € 51,646  in case of untrue information).

In addition, now, the failure to appear at the hearing is also expressly taken into account and therefore it may represent an autonomous procedural infringement which may be subject to an autonomous fine that may be potentially applied irrespective of the amount of the fine imposed.

  1. The introduction of effective and dissuasive periodic penalty payment for non-compliance with ICA sanctioning decisions or decisions imposing interim measures or commitments: up to 5% of the average daily turnover achieved worldwide during the previous business year for each day of delay (Article 15, para 2-bis).
  1. Be aware of the detailed rules for submitting leniency application

The new legislation introduced a set of detailed rules on leniency application, which had up till now been regulated only by soft law. On the heels of the European Commission's procedure, the  Legislative Decree confirms that if an applicant wants to submit a leniency application but does not yet have enough supporting evidence, it can submit an application for a “marker” that temporarily (for a period to be determined from time to time by the ICA) preserves its position as the first company to come forward (Article 15 - sexies).

In addition, the Legislative Decree provides for a mechanism of coordination between the ICA and the European Commission, which should ease the relationship between the two Authorities in the absence of the one-stop shop principle related to the existence of two concurring leniency systems at the EU level, one applied by the European Commission and the other at the national level by the single NCAs.  Accordingly, the Legislative Decree brings into law a considerable amount of soft law rules which were previously adopted by the European Commission and the European Competition Network in the communications for the harmonization of the leniency systems across the EU, such as the ECN Model Leniency Programme and the related Explanatory Notes. 

If you are a natural person working within a company
  1. Natural persons can now be held directly liable towards the ICA for lack of cooperation during the investigation

The company no longer constitutes a shield for individual persons. Indeed, the latter can be subjected to an administrative fine if he/she not only wilfully but also negligently:

  1. obstructs the inspection at their house;
  2. provides inaccurate or misleading information as well as refuse to provide or omit it, without prejudice to the right not to self-incriminate;
  3. refuses to appear at hearings.

The administrative fine may ranging from € 150 to € 25,823, but not only this: the ICA may impose a periodic penalty payment ranging from € 150 to € 500 for each day of delay of compliance in respect of the three activities mentioned above. 

  1. Personal houses and premises are no longer shielded from ICA inspection 

Be aware that premises, land, means of transportation, including the homes of managers, directors and other members of staff of the companies or associations of undertakings involved in the investigation can be dawn raided by the ICA (which has gained powers similar to the ones of the European Commission) if a reasonable suspicion exists that documents relevant for proving an antitrust infringement are being kept at such premises; in such cases the ICA should be previously authorised by a decision of the public prosecutor (Article 14, para 2).

  1. Leniency application submitted from your company can save you from criminal penalties

It is good to know that if current and former directors, manager and other members of staff have participated in an anticompetitive agreement which constitutes also a criminal offence under Articles 353, 353-bis, 354 and 501 of the Italian Criminal Code, they will not be prosecuted for the criminal offence, if the company has applied for leniency. The leniency application must be submitted before the opening of criminal procedure against current and former director, manager and other member of the staff. Moreover, it is necessary that such person provides full cooperation to the ICA and to the public prosecutor. This safeguard applies also if the leniency application is submitted to the European Commission instead of to other NCAs.

This without prejudice to the possibility for person harmed by the antitrust infringement to bring an action for damages against the leniency applicant.

First takeaways

The amendments introduced by the Legislative Decree confirm the need for companies to have in place a strong compliance programme and for natural persons to pay more attention to antitrust rules in the carrying out of their business activities as they are now directly exposed to sanctions.

For those companies already having a compliance programme in place, it is necessary to now review it and ensure that it reflects the new legal changes. In particular, attention should be paid to the new procedural infringements described above, particularly in relation to the lack of cooperation in the course of the investigation and to the extension of the possible liability to natural persons in relation to such violations.

Moreover, dawn raids guidelines should be updated with regard to the new ICA’s power in relation to the inspections of private dwellings which should be adequately taken into account.

 Companies should further be encouraged to actively promote the adoption and implementation of an antitrust compliance programme in the context of associations to which they are part, even more so now in light of the new criteria in force with regard to the calculation of pecuniary fines, which will lead to a significant increase in the amounts of the fines imposed by the ICA in case of antitrust infringements.

Certain aspects of the amendment introduced by the Legislative Decree will then need to be evaluated in their practical application: this is particularly the case for the link introduced between the leniency application of the company and immunity of natural person from criminal sanction levied for tender misbehaviour. Indeed, while a current administrator can actually influence the decision of a company of applying for leniency, this is hardly the case for a mere employee. This may raise issues also in terms of employment regulation.

Last but not least, further important new provisions that further enhance the ICA powers are provided for in the Proposal for Annual Competition Law (as described in our previous article): stay tuned!

 

 

Authored by: Sabrina Borocci, Luigi Nascimbene, Aurora Muselli, Marina Maccagno, Vanessa Guzzi.
 


[1]               The articles quoted in brackets refer to Italian Law no. 287 of 1990.

 

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