1. ECtHR 4 March 2014, Grande Stevens and others vs. Italy
EU Financial Law 11 April 2018 Training exercise: Administrative or Criminal sanction?
ECtHR 4 March 2014, Grande Stevens and others vs. Italy
Benedetta Barmann

2. 1. Facts and history of the procedure

3. Five applications
The case originated in five applications lodged with the European Court of Human Rights (the “ECtHR”), by two companies, Exor S.p.a. and Giovanni Agnelli & C. S.a.s, registered under Italian law, and three Italian nationals, Mr.Gabetti (the Chairman of Exor), Mr. Marrone (the authorized representative of Giovanni Agnelli) and Mr. Grande Stevens (trusted lawyer of Fiat group, who advised the other applicants).

4. The Fiat’s operations
On 26 July, 2002, FIAT (the well-known Italian automobile producer, a public listed company, whose controlling shareholder is Exor) closed a financing agreement with eight banks.
Under the agreement, should FIAT fail to payback the loan granted by the banks, the latter could compensate their claim by subscribing a company’s capital increase.
This would have meant Exor losing its controlling position in FIAT.

5. Mr. Grande Stevens’ legal advice
In order to avoid such scenario, the applicants, following the legal advice of Mr. Grande Stevens, initiated in 2005 (the year in which the FIAT’s loan agreement with the eight banks was due to expire) the renegotiation of a derivative contract (an equity swap contract) that FIAT group had in place with an investment bank (Merrill Lynch International).
During the renegotiation process, Mr. GS consulted CONSOB, the Italian financial markets watchdog, in order to have a comfort opinion that a takeover bid could have been avoided if a hypothetical operation, identical to the negotiations taking place with ML, were to be successful.
Mr. GS concealed to CONSOB that the above mentioned renegotiation of the derivative contract with ML was going on.

6. The “Press Release” of Fiat
Following a CONSOB’s request, the applicants issued a press release indicating that no initiative had been taken vis – à – vis the expiry of FIAT’s loan agreement (the “Press Release”).
Again, no mention of the negotiations with Merrill Lynch were made, although at the time the Press Release was issued such negotiations were at an advanced stage.
Finally, the applicants managed to successfully renegotiate the derivative transaction with Merrill Lynch and, hence, ensured that Exor maintained its controlling position in FIAT, even after the borrowing banks subscribed the company’s capital increase (once the loan agreement had expired).

7. The CONSOB’s proceedings
Months later, CONSOB’s insider trading direction charged the applicants with market manipulation offences, because it deemed that they intentionally did not disclose in their Press Release the renegotiation of the equity swap with Merrill Lynch.

8. Fines and inhibitory orders
The administrative proceedings were closed with CONSOB imposing fines on the applicants, as well as inhibitory orders against Messrs. Gabetti, Grande Stevens and Marrone, banning them from administering, managing or supervising listed companies for several months.
Some of the administrative sanctions imposed by CONSOB were partially annulled in appeal by Turin’s Court of Appeal.

9. The criminal proceedings
In parallel, the applicants were committed for trial before the Turin District Court for market manipulation offences, which in Italy do also constitute criminal offence.
The criminal proceedings related to the same Press Release. On 2013 the Court of Appeal of Turin condemned Mr. Gabetti and Mr. Grande Stevens for the criminal offence of market manipulation, while it acquitted the other applicants.

10. The complaints to the ECtHR

11. I. Alleged violation of Article 6
The right to fair trial applies in relation to criminal charges (criminal limb) and to the determination of civil rights and obligations (civil limb). It includes:
access to the court
right to a public hearing
equality of arms; and
adversarial trial
APPLICANTS: the proceedings before Consob had not been fair and the body lacked impartiality and independance

12. 1. Wheter Article 6 applies in its criminal head
APPLICANTS
DEFENDANT

13. 2. Are Consob’s administrative proceedings fair?
SHould the answer to the first issue be affirmative, then the (second) question is whether administrative proceedings such as those held before CONSOB – which neither guarantee a clear separation between investigative and decisional functions, nor do they foresee a final oral hearing before the decisional body of the financial watchdog – are fair within the meaning of article 6 (1) of the Convention.

14. 3. Wheter the CONSOB was an independent and impartial tribunal
APPLICANTS
DEFENDANT

15. 4. Whether the applicants had had access to a court with full jurisdiction
DEFENDANTS

16. II. Alleged violation of Article 4 of Protocol 7
Ne bis in idem principle
«No one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offence for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State»
Defendant and Plaintiff submissions

17. The legal framework

18. Market manipulation as an administrative offence
Market manipulation is qualified as an administrative offence by Article 187-ter of the Italian Banking Law. Pursuant to such provision, pecuniary and personal inhibitory measures (such as, the ban on assuming responsibility on top-management positions in listed companies) are imposed against any person who, through the media, including the Internet, or by any other means, disseminates information, rumors or false or misleading news that give or are likely to give false or misleading signals as to financial instruments.

19. Market manipulation as a criminal offence
Market manipulation constitutes criminal offence, under Article 185 of the Italian Banking Law, according to which, any person who disseminates false information or sets up sham transactions or employs other devices, concretely likely to produce a significant alteration in the price of financial instruments, is imprisoned for between one and six years and punished with a fine of between twenty thousand and three million euro.

20. A fair criminal trial It protects the right to: be presumed innocent;
be promptly informed of any accusation;
be given adequate time and means for defensive purposes;
examine and have examined witnesses against him and to obtain the attendance and examination of witnesses on his behalf under the same conditions as witnesses against him;
access to legal assistance.

21. The ne bis in idem principle
Article 4 of Protocol 7, attached to the ECHR, sets forth the ne bis in idem principle.
According to such principles, no one should be tried or punished again in criminal proceedings in relation to the same offence for which he has already been finally acquitted or convicted.
The ne bis in idem principle does not apply when new evidence or new facts are discovered, or if there has been a fundamental defect in the previous proceedings, which could affect the outcome of the case.

22. 3. The Judgment ECtHR 4 March 2014 Grande Stevens and Others vs. Italy
(application nos /10, 18647/10, 18663/10, /10 and 18698/10)

23. The violation of both Art. 6 § 1 of the Convention and Art
The violation of both Art. 6 § 1 of the Convention and Art. 4 of Protocol No. 7
In the Grande Stevens case, the European Court of Human Rights, accepting the main claims made by the litigants, held that both Article 6 § 1 of the Convention and Article 4 of Protocol No. 7 were violated.

24. The conclusion reached by the Court
The Court came to the conclusion that the “administrative” sanction was in fact a criminal penalty issued by Consob without respecting the right to a fair proceeding.
Nor this was protected by judicial review of Consob’s decision.
In addition, litigants were punished both by Consob and criminal courts for the same facts.

25. ECHR interpretation: Substance prevails over form
Such aspects do not escape to the application of the Convention, as interpreted by the ECtHR.
The latter’s case-law constantly holds that the ECHR is a living instrument and that the legal terms therein have an autonomous meaning vis – à – vis the constructions set forth by the national laws.
Hence, what matters for the ECtHR in the application of the Convention is substance over form.

26. The substantive approach: the notion of “criminal charge
In accordance with the ECtHR’s case-law, an offence can be defined as “criminal” one, in light of the following alternative criteria:
(i) the legal qualification of the measure under national law;
(ii) the nature of the measure, independently of its domestic classification; and
(iii) the nature and severity of the penalty imposed on the basis of such measure.

27. The sanctions proceedings before administrative independent authorities
Article 6 ECHR is complied with where:
(i) either the administrative authority imposing the sanction in question is capable of offering all the guarantees enshrined therein; or
(ii) the decision issued by the non-judicial body is subject to a review from a judicial authority that meets the requirements of that provision, including independence, impartiality and the possibility to exercise full judicial review powers.

28. The intensity of judicial review
In other words, the imposition of a “criminal” fine by an administrative independent authority, whose sanctions proceedings do not guarantee all the safeguards set forth at Article 6 ECHR, is not per se incompatible with the Convention, in so far as the decision imposing the fine is open to challenge before a tribunal having full jurisdiction on the case.
Hence, the intensity of the judicial control over the decisions of the administrative independent authorities becomes a crucial element for assessing the compatibility of the proceedings with Article 6 ECHR.

29. “Regulation by litigation”
The Grande Stevens case is a good example on the application of the safeguards guaranteed by the ECHR in sectors, whose regulation is entrusted to administrative independent authorities.
In such fields, along with the regulation, normally, comes also the power of such independent authorities to impose administrative sanctions against market players, which do not comply with the regulatory measures set forth by the same authority.
It may even be held that the power to impose “administrative” sanctions represents itself a regulatory tool of a given economic and/or financial sector.