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CEO Liability for Corporate Compliance Failures: A Growing Concern in Italy

Rome, Italy - As companies face increasing regulatory scrutiny and public pressure to prioritize ethics and compliance, CEOs and executive directors are being held accountable for failures in their organizations’ risk and compliance management practices. According to recent reports, even CEOs who have delegated responsibilities to lower- level officers may still be liable for crimes committed by those officers.

Fiduciary Duty to Minimize Risk

Under Italian law, directors have a fiduciary duty to minimize the risks of crime commission, effectively requiring them to adopt and implement a compliance shield as part of their duties. This means that companies are obligated to establish robust risk management practices and internal controls to prevent illegal or illicit activities.

Consequences for Non-Compliance

• Companies found guilty of non-compliance with regulatory requirements may face severe consequences, including:
  • Civil liability
  • Administrative penalties
  • Criminal prosecution
• CEOs and executive directors who fail to supervise their organizations’ compliance efforts may be held personally liable for damages suffered by third parties as a direct result of illegal or illicit actions.

Liability for Directors and Senior Management

• Directors and senior management are also at risk of facing civil liability for breach of their duties towards the company, its creditors, shareholders, and third parties.
• In cases where compliance rules safeguarding the integrity of the company’s net assets have been breached, directors may be held responsible for insolvency.

Administrative Consequences

• Companies found liable for non-compliance with regulatory requirements may face administrative penalties, including:
  • Pecuniary sanctions
  • Disqualifications
  • Confiscations
  • Publication of the court’s decision in one or more newspapers at the entity’s expense
• In some cases, these penalties can be as high as 10% of the company’s turnover.

Criminal Liability

• Companies and their directors may face criminal prosecution for breaches of regulatory requirements.
• Even if a company has adopted a compliance shield, failure to implement it effectively or demonstrate that it was not responsible for the breach can result in criminal sanctions.

Corporate Compliance Defence

• To avoid criminal sanctions, companies must:
  • Prove that they have adopted an effective 231 compliance shield
  • Established a special compliance supervisory office
  • Demonstrate that the executive who committed the crime fraudulently evaded or escaped the company’s compliance programs and controls
• Failure to do so can result in increased liability for CEOs and executive directors.

As the Italian government continues to prioritize corporate governance and ethics, companies must take proactive steps to ensure they are meeting their regulatory obligations and minimizing the risk of non-compliance.