Company's acquittal for suitability of Organisational Model: indications by Court of Milan

In its recent judgment, No. 1070/2024 (filed last 22 April), the Court of Milan - Second Criminal Section presents a series of important indications on the requirements necessary to allow the exemption of the entity's administrative liability deriving from the prior adoption of an adequate Organisational Model 231.

The Court - required to rule on the 231 liability of Company X.Y., accused pursuant to Article 25-ter of Legislative Decree 231/01 for having failed to adopt an Organisational Model suitable for preventing the perpetration of the offences of false corporate communications - in the judgment provides concrete operating instructions concerning the structure and minimum content that Organisational Models should have in order to be considered suitable for preventing the perpetration of offences and, consequently, capable of exempting the entity from the relative administrative liability.

Given the importance and usefulness of the judgment for both companies and professionals involved in the preparation of Organisational Models or participating in Supervisory Bodies, the indications provided by the Milanese judges are summarised below, organised by subject.

Model 231: the general section

The general section of the Model, which identifies the structural and organisational features of the 231-system adopted by the Company, "in addition to describing the company's legal configuration and the related administration and control bodies", should contain:

  1. the Code of Ethics: in several parts of the judgment, the Milan judges specify that the set of principles and values that inspire the company's actions should be contained in the general section of the Model;
  2. information and training activities on the Model and on the prevention protocols: the Court specifies that training initiatives should not result in occasional activities, but should be inspired by criteria of continuity and intensity;
  3. the methods for detecting violations of the Model: for the effective operation of the Model, it is necessary for the entity to equip itself with a system for detecting violations, which allows all its addressees to report an offence, even a potential one [protected from possible retaliation and in full respect of its confidentiality, in application of the Italian and Community legislation on Whistleblowing];
  4. the disciplinary system: another fundamental requirement for the effective implementation of the Model is the establishment of a disciplinary system that is differently articulated according to the roles covered by the recipients. In this regard, the Court makes an interesting reflection on the variable remuneration system linked to predefined performance goals, which is considered objectively capable of facilitating the commission of conduct contrary to company rules that may, at the same time, determine an advantage for the entity. According to the judges, an effective countermeasure could consist in the application of sanctions involving the curtailment of the variable part of remuneration, so as to discourage practices or conduct that do not comply with the provisions contained in the operating protocols;
  5. the provision and regulation of the Supervisory Body: the presence of a body responsible for supervising the operation of and compliance with the Model and ensuring that it is kept up-to-date is essential for the proper operation of the Model itself. The Court of Milan also focuses on the SB's characteristics of autonomy, professionalism and continuity of action, emphasising the importance of its 'constant operation over time and in continuous interaction with the company's administrative and control bodies', the planning of activities, the presence of a budget for carrying them out and the presence of regulations governing its operation. Particular emphasis is also put on the decisive role played by periodic information flows, both those received by the SB to keep constant information on company performance, and those transmitted by the SB to the administrative body, concerning the activities carried out and reports of violations received.

Model 231: the special section

The special part of the Model, whose function is characterised by the identification of the activities most at risk of offences and the formalisation of the content of the precautions to prevent the commission of offences, should instead consist of the following elements:

  1. the description of the structure of the relevant offences: given the constant implementation of the list of offences by the legislator, this part requires constant updating;
  2. the risk assessment: which must be carried out through a process characterised by (i) identification of the areas potentially at risk of offences, (ii) detection of sensitive activities and the company departments and roles involved, (iii) detection and assessment of the degree of effectiveness of the operating system already in place and identification of any critical issues, (iv) definition of preventive measures;
  3. the general principles of conduct: which describe rules applicable to all addressees;
  4. conduct protocols: these protocols must represent precise, concrete and risk-oriented precautions. One of the fundamental principles that must inspire the content of the protocols, add the Milanese judges, is that of the segregation of duties and of the positions of guarantee. As for the content of the protocols, the Court finally specifies, they must be characterised by (i) the indication of a person in charge of the relevant process, (ii) the regulation of the relevant process, (iii) specificity and dynamism, understood as substantial adherence to the risk of offence and the ability to adapt to organisational and corporate changes, (iv) the guarantee of completeness of information flows, (v) the effective monitoring of manager control.

Going back to the case in question in the criminal proceedings, in the light of the important indications summarised above, the Court of Milan proceeded to analyse X.Y.'s Organisational Model and qualified it as suitable for preventing the offence of false corporate communications that had occurred.

On the contrary, the technical consultant of the Public Prosecutor had concluded that the Organisational Model in force in the years in which the offences were committed, which consisted only of the General Section, was unsuitable, due mainly to two critical elements: the absence of an analysis of the risk of offence and the lack of conduct protocols.

The judges of first instance, however, considered that the critical aspects noted by the Prosecutor's consultant were the result of a more formal than substantial approach to the examination of the organisational and regulatory system of the company X.Y.

In fact, although not included in the Model, the risk assessment activity had certainly been carried out by the company, also through its SB, as can be seen from a series of SB minutes referred to in the judgment.

As regards the protocols for preventing the risk of offences, although it is true that the Model, in the version in force at the time of the events, did not "formally" contemplate the special section, the company had in any case formally adopted a complex and detailed system of delegated powers and authorisation levels and a series of Group policies characterised by the presence of specific procedures for preventing offences, which were subsequently incorporated in a new version of the Model (considered by the PM's consultant to be suitable and effective).

Therefore, given the positive assessment of the suitability of X.Y.'s Organisational Model to prevent offences of the kind that occurred, the Court - as the final argumentative step of its decision which, we anticipate, led to the company's acquittal - examines the profile of the possible fraudulent evasion of the Model by the manager pof the company.

On the basis of the results of the trial, the judges consider proven in the present case the phenomenon of the so-called management override, which consists in a scenario in which the company's conduct becomes forcibly marked by the systematic violation and fraudulent circumvention of every rule and procedure and in the presence of which any Organisational Model, even if adequate and effectively implemented, would not be able to prevent elusive and manipulative conduct.

In conclusion, in light of the above considerations, the Court of Milan acquitted the company X.Y. due to the non-existence of the contested administrative offence.a