Former Attorney General Anthony Borg Barthet, one of the members of the judiciary of the European Court of Justice in Luxembourg, yesterday decreed that the authorities of a member state may not, in criminal proceedings relating to false accounting against Italian PM Silvio Berlusconi, rely on a directive to increase the criminal liability of accused persons.
Several persons are being prosecuted before Italian courts for offences relating to false accounting committed prior to 2002, the year in which new criminal provisions covering those offences entered into force in Italy.
Borg Barthet said that according to the Court’s consistent case-law, a directive such as the First Companies Directive cannot impose obligations on an individual and cannot therefore be relied on as such against that individual. The Court has also ruled in its case-law that a directive cannot, of itself and independently of national legislation adopted for the purpose of its application, have the effect of increasing the criminal liability of accused persons.
According to the Italian courts, application of those new provisions, which are more favourable than the previous provisions, will prevent criminal prosecutions being brought against the accused.
The provisions set out a significantly shorter limitation period – four and a half years instead of seven and a half years maximum – make the prosecution of an accused subject to the requirement that a complaint is lodged by a Member or creditor who considers that he has been adversely affected by the false accounts, and exclude any penalty in respect of false accounting which has no significant effect or is of minimal importance and does not exceed certain thresholds.
This is the context in which the Milan District Court and the Court of Appeal at Lecce had asked the Court of Justice whether the offence of false accounting is covered by the First Companies Directive and whether the new Italian provisions are compatible with the community law requirement that penalties provided for under national legislation for breaches of community provisions must be appropriate.
The Court found that the penalties for false accounting are designed to punish serious infringements, where the annual accounts do not provide a true and fair view of a company’s assets and liabilities, financial position and profit or loss.
The system of penalties provided for by the First Companies Directive applies not only for failure to publish accounts but also for publication of false accounts.
While the choice of penalties remains within their discretion, Member States must ensure in particular that those penalties are appropriate in character, that is to say effective, proportionate and dissuasive.
The principle of the retroactive application of the more lenient penalty forms part of the constitutional traditions common to the Member States.
It follows that this is a general principle of Community law which national courts must respect when applying national legislation adopted for the purpose of implementing Community law and, in the present cases, the directives on company law.
The Court takes the view that it is unnecessary to resolve the question of whether the principle of the retroactive application of the more lenient penalty must be applied in the case in which that penalty is contrary to Community law.
If the Italian courts were to conclude that the new national provisions are incompatible with the requirement that penalties be appropriate, they would, on the basis of the Court’s case-law, be obligated to set those provisions aside under their own authority.
In the present case, non-application of the more lenient penalties could have as a consequence the imposition of manifestly more severe criminal penalties such as those in force at the time when the acts were carried out.