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Italy: Mandatory Confiscation in Security Violation Ruled Unconstitutional

(Aug. 16, 2019) On March 6, 2019, the Italian Constitutional Court declared unconstitutional article 187-sexies of Legislative Decree No. 58 of 1998 , which provides for the mandatory confiscation of the proceeds of an insider trading offense and the instruments used to commit it. ( Decision No. 112 of March 6, 2019 (the Decision) (in Italian).)
Background of the Case
The law in question provided for the mandatory confiscation of not only the profit gained from committing the offense but also the products of the offense and the instruments used to commit it. If it was not possible to confiscate the products, article 187-sexies provided for the confiscation of their equivalent in money or value. (Decision, considerations of fact § 1.)
The underlying case dealt with a penalty issued on May 2, 2012, by the National Commission for Companies and Stock Exchange (CONSOB) for the administrative violation of abuse of confidential information prior to the public offer of securities in a company. (Considerations of fact § 1.1 & considerations of law § 4.3, para. 4.)
CONSOB imposed the confiscation of assets based not on the profit obtained by the violation but on the product of the crime, including the funds used to purchase securities. (Considerations of fact § 1.3.)
The referring judge argued that this confiscation lacked proportionality between the penalty imposed on the violator and the final public goal sought. The defect of lack of proportionality, according to the judge, violated the constitutional protection of the right of property and reasons of general interest that justify the measurement of the confiscation. (Considerations of fact § 1.4, paras. 1 & 4.)
Constitutional Provisions Involved
The Constitutional Court performed its review in light of, among others, articles 24, 111, and 117, first paragraph, of the Italian Constitution ( English translation ), which provide the right to

access courts of law for the protection of civil and administrative rights
legal defense
due process of law
an adversary proceeding
the reasonable duration of trials
be informed of charges in criminal proceedings
cross-examination
legal evidence
judicial review

The Court also based its decision on the primacy of EU legislation and international obligations over the national legislation in Italy, including article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms of 1950 , which establishes the constitutional right to a fair trial, and article 49, which establishes the principles of legality and proportionality of criminal offences and penalties. (Considerations of law § 1.6, paras. 5 & 6.)
Reasoning of the Court
The Court recalled that, in the underlying case, the offender was fined with a monetary penalty of €200,000 (about US$223,927), which was the total value of the shares acquired through the use of privileged information, of which only €26,580 (about US$29,760) represented a “profit.” The Court noted that the confiscated amount was about 13 times the amount of the profit, thus rendering the measure “punitive” and contrary to the constitutional guarantees at stake. (Considerations of law § 8.3.6, paras. 2 & 3.)
The Court considered the disproportionate confiscation measure in view of the accused’s constitutional right to property. (Considerations of law § 1.3, para. 2.) The Court mentioned its prior precedent against administrative penalties that are clearly disproportionate relative to the gravity of the offense (Considerations of law § 8, para. 2), which it noted impinge on the right of property of the offender (Considerations of law § 8.1, para. 1). The Court recalled that it has repeatedly held that administrative penalties that carry a “punitive” character are considered to be subject to the constitutional guarantees on criminal matters (i.e., no crime without a previous law; no reformatio in peius —prohibition of retroactive increased penalities; sufficient description of the conduct that is sanctioned; and retroactivity of the reformatio in mitius —ex post facto benefits for the convict). Also relevant for the Court was the constitutional principle of the need for an educational function of the penalty. (Considerations of law § 8.2.1, paras. 1–3.) The Court also made a reference to the Anglo-American concept of “punitive damages,” recalling that the imposition of foreign judicial decisions is also subject to the principle of proportionality. (Considerations of law § 8.2.4, para. 3.)

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