(VENICE COMMISSION)
“ RULES FOR THE RESOLUTION
OF CONFLICTS OF INTERESTâ€
(“FRATTINI LAWâ€)
ANALYSIS AND REVIEW
by
Mr Karol JAKUBOWICZ
(Expert, Poland)
Mr David WARD
(Expert, United Kingdom)
FOREWORD
The present review, commissioned by the Venice Commission of the Council of Europe, deals with "Rules for the resolution of conflicts of interest" (“Frattini Lawâ€), adopted by the Italian Chamber of Deputies on 13 July 2004. The purpose of this review is to ascertain whether the law is compatible with international standards and whether, in the light of those standards, it truly resolves the issues which prompted its adoption.
BACKGROUND
Conflict of Interest
According to a dictionary definition, a conflict of interest “refers to a situation when someone, such as a lawyer or public official, has competing professional or personal obligations or personal or financial interests that would make it difficult to fulfill his duties fairly†(http://www.lectlaw. com/def/c095.htm). The following are listed as the most common forms of conflicts of interests:
· Self-dealing, in which public and private interests collide, for example issues involving family, or privately held business interests;
· Outside employment, in which the interests of one job contradicts another;
· Accepting of benefits, including bribes and other gifts accepted to cury favor,
· Influence peddling, using one's position to influence other realms;
· Use of government / corporate / legal property for personal use;
· Unauthorized distribution of confidential information (see: http://en.wikipedia.org/ wiki/Conflict_of_interest).
Conflict of interest is a widespread and growing phenomenon and it is regulated and managed in different countries in different ways 1. International standards in this field are defined i.a. in Recommendation No. R (2000) 10 of the Council of Europe Committee of Ministers to member States on Codes of conduct for public officials, and in RECOMMENDATION OF THE OECD COUNCIL ON GUIDELINES FOR MANAGING CONFLICT OF INTEREST IN THE PUBLIC SERVICE (2003).
Recommendation No. R (2000) 10 defines conflict of interest in Article 13 in the following way:
1. Conflict of interest arises from a situation in which the public official has a private interest which is such as to influence, or appear to influence, the impartial and objective performance of his or her official duties.
2. The public official's private interest includes any advantage to himself or herself, to his or her family, close relatives, friends and persons or organisations with whom he or she has or has had business or political relations. It includes also any liability, whether financial or civil, relating thereto.
The Recommendation does not cover publicly elected representatives, members of government and holders of judicial office, but it still sets standards which are applicable in any conflict of interest situation.
This includes the following principles:
· Article 6: In the performance of his or her duties, the public official should not act arbitrarily to the detriment of any person, group or body and should have due regard for the rights, duties and proper interests of all others;
· Article 7: In decision making the public official should act lawfully and exercise his or her discretionary powers impartially, taking into account only relevant matters.
· Article 8: 1. The public official should not allow his or her private interest to conflict with his or her public position. It is his or her responsibility to avoid such conflicts of interest, whether real, potential or apparent. 2. The public official should never take undue advantage of his or her position for his or her private interest.
· Article 14: The public official who occupies a position in which his or her personal or private interests are likely to be affected by his or her official duties should, as lawfully required, declare upon appointment, at regular intervals thereafter and whenever any changes occur the nature and extent of those interests.
· Article 21: 1.The public official should not offer or give any advantage in any way connected with his or her position as a public official, unless lawfully authorised to do so. 2. The public official should not seek to influence for private purposes any person or body, including other public officials, by using his or her official position or by offering them personal advantages.
An Annex to the OECD Council Recommendation defines conflict of interest as involving “a conflict between the public duty and private interests of a public official, in which the public official has private-capacity interests which could improperly influence the performance of their official duties and responsibilitiesâ€.
The Annex distinguishes three types of conflict of interest:
· actual, a current conflict of interest situation,
· apparent, when it appears that a public official’s private interests could improperly influence the performance of their duties but this is not in fact the case,
· potential, where a public official has private interests which are such that a conflict of interest would arise if the official were to become involved in relevant (i.e. conflicting) official responsibilities in the future.
According to the Annex, where a private interest has in fact compromised the proper performance of a public official’s duties, that specific situation is better regarded as an instance of misconduct or abuse of office, or even an instance of corruption, rather than as a conflict of interest.
The Annex recommends that clear rules should be set on what is expected of public officials in dealing with conflict of interest situations:
a) Dealing with conflicting private interests -- Public officials should be required to accept responsibility for identifying their relevant private interests. An organisation’s policy statement should make it clear that the registration or declaration of a private interest does not in itself resolve a conflict. Additional measures to resolve or manage the conflict positively must be considered.
b) Resolution and management options -- Options for positive resolution or management of a continuing or pervasive conflict can include one or more of several strategies as appropriate, for example:
· Divestment or liquidation of the interest by the public official.
· Recusal of the public official from involvement in an affected decision-making process.
· Restriction of access by the affected public official to particular information.
· Transfer of the public official to duty in a non-conflicting function.
· Re-arrangement of the public official’s duties and responsibilities.
· Assignment of the conflicting interest in a genuinely ‘blind trust’ arrangement 2.
· Resignation of the public official from the conflicting private-capacity function, and/or
· Resignation of the public official from their public office.
The Main Conflict of Interest Situation Covered by the Present Law
This law is a culmination of a long period of attempts to adopt similar regulations in Italy 3 to resolve a situation in which the Prime Minister owns extensive media interests, including Mediaset with three major commercial television channels 4, operating alongside RAI, the public service broadcaster, which operates the other 3 major national television channels 5. Both companies are, of course, in competition for audiences and advertising revenue.
This situation has long been openly acknowledged by everyone to constitute a conflict of interest.
One reason for this is the extensive influence that the ruling party (in this case Forza Italia, let by Mr. Berlusconi) and the government itself can exert on RAI.
RAI operates by virtue of a convention with the government. It also has to conclude a national service contract with the Ministry of Communications, as well as regional service contracts and, in the case of the autonomous provinces of Trento and Bolzano, provincial service contracts.
The Board of RAI is appointed by the presidents of both houses of Parliament 6. Appointments are based on party political affiliation (3 members representing the ruling party/coalition and 2 the opposition). The Director General of RAI is appointed by the Chairman of the Board and the Minister of Economic Affairs.
In addition, the public broadcaster is subject to control by a parliamentary commission for the general direction and surveillance of radio-TV services. The commission has, and looks set to retain, extensive powers and competencies vis-Ã -vis RAI, including some decision-making powers concerning programming and finance 7.
These and other provisions provide evidence of considerable and direct involvement of various State authorities, including those directly subordinate to the Prime Minister and leader of the ruling party, in the affairs of the public service broadcaster.
This state of affairs must be regarded as an actual conflict of interest, especially given the many instances of direct or indirect government influence on RAI 8. It creates potential for actions constituting conflict of interest or abuse of office as defined in the CoE and OECD documents cited above.
GENERAL COMMENTS AND ASSESSMENT
1. This law defines a mix of a priori incompatibilities (primarily of an administrative nature) and the a posteriori examination of individual acts of government. It does not contain “preventive†measures for solving a potential conflict of interest; instead, the Anti-Trust and Broadcasting Authorites have to investigate abuses on a case by case basis when a government act is considered to be in violation of the law. This would mean examining a huge number of acts.
2. The law only declares incompatibility between the management of a company and public office, not between ownership and public office;
3. In the case of a conflict of interest, no sanctions are envisaged for owners, only for the company managers. Information on conflicts of interest must be brought to Parliament, which means that there could potentially be political sanctions;
4. Circumstances when the Anti-Trust and Broadcasting Authorities are authorised to act to resolve conflicts or interest are very carefully and narrowly defined. This refers to cases when companies under the authority of government officials act improperly, but not when the government official acts improperly, e.g. by acting to discriminate against, or weaken, a competing company.
5. Abuse of a dominant position is banned, but no mention is made of Law no 112 of 3 May 2004 "Principles governing the broadcasting system and RAI-Radiotelevisione italiana Spa, and the authority delegated to the Government to issue the consolidated legislation on television broadcasting" (Gasparri Law) which changes the framework of analysis of dominant position by adopting the concept of the “integrated communications systemâ€. This vastly extends the scope of the “relevant market†and complicates the ascertainment of a dominant position.
DETAILED COMMENTS
SECTIONS 1-3
Section 1 identifies public officials affected by the provisions of the law (persons holding government office, i.e. the Prime Minister, ministers, deputy ministers, junior ministers and special government commissioners) and puts them under an obligation to devote themselves solely to the public interest and refrain from taking measures and participating in joint decisions in situations where there is a conflict of interest.
Section 3 defines conflicts of interest as the occurrence of one of two situations:
· An act of commission (introduction or a measure, or the act of proposing a measure) or omission (failure to take a measure that should have been taken) while he/she is disqualified under Section 2 (1);
· Or when the measure or omission has a specific, preferential effect on the assets of the office-holder or of his or her spouse or relatives up to the second degree, or of companies or other undertakings controlled by them, to the detriment of the public interest.
Section 2 (1) disqualifies persons holding government office from:
· holding specified types of offices or occupying specific kinds of posts, including in profit-making companies or other business undertakings;
· undertaking an occupational activity of any kind or any work in a self-employed capacity, on behalf of public or private undertakings, in an area connected with the government office in question, occupying posts, hold office or performing managerial tasks or any other duties in professional societies or associations;
· performing any kind of public- or private-sector job;
Pursuant to Section 2 (2), individual entrepreneurs must arrange to appoint one or more authorised managers.
ANALYSIS
Definitions of conflict of interest cited above refer in very general terms to situations when public officials have personal or financial interests that would make it difficult for them to fulfill their duties with nothing but the public interest in mind. Here, the approach is, on the whole, different. The definition refers in most cases to very specific situations: particular kinds of jobs or activities are defined as being incompatible with government office.
However, the broader approach is also manifested in some cases. This refers in particular to provisions relating to situations when an act of commission or omission by a government official “has a specific, preferential effect on the assets of the office-holder or of his or her spouse or relatives up to the second degree, or of companies or other undertakings controlled by them, to the detriment of the public interestâ€.
COMMENT
The narrower and more administrative definition of conflict of interest suggests that no such conflict appears when specific circumstances listed in the law do not arise. In short, a conflict of interest appears when a government official is a manager of a company, but not when he/she is an owner of that company without holding any position in it.
This is contradicted to some extent by the prohibition of behaviour which could have “a specific, preferential effect on the assets of the office-holder or of his or her spouse or relatives up to the second degree, or of companies or other undertakings controlled by them, to the detriment of the public interestâ€. The appearance of such a direct “specific and preferential†effect could be difficult to prove, however.
SECTION 4
This section reaffirms existing regulations concerning the abuse of a dominant position and liability of persons found guilty of such behaviour.
COMMENT
No mention is made in this Section of Law no 112 of 3 May 2004 "Principles governing the broadcasting system and RAI-Radiotelevisione italiana Spa, and the authority delegated to the Government to issue the consolidated legislation on television broadcasting" (Gasparri Law) which changes the framework of analysis of dominant position by adopting the concept of the “integrated communications systemâ€. This vastly extends the scope of the “relevant market†and complicates the ascertainment of a dominant position.
SECTIONS 5 AND 10
Under these sections, government officials are under an obligation to declare, within 30 days of taking office, to the Anti-Trust Authority (and, where appropriate, to the Broadcasting authority) disqualification situations covered by Section 2 (1), as well as, within 60 days of taking office, their own assets, including shareholdings. They must also declare any subsequent changes in the information concerning their assets as previously supplied, within 20 days of the events giving rise to those changes.
Under provisional provisions, also incumbents holding offices when the law goes into effect have an obligation to make such reports.
Such declarations must also be made by the spouse and relatives up to the second degree of the person holding government office.
COMMENT
The law places no other obligations on government officials to act to remove conflict of interest in ways foreseen by the OECD Council Recommendation (divestment or liquidation of the interest by the public official 9; recusal of the public official from involvement in an affected decision-making process; restriction of access by the affected public official to particular information; transfer of the public official to duty in a non-conflicting function; re-arrangement of the public official’s duties and responsibilities; assignment of the conflicting interest in a genuinely “blind trust†arrangement 10; resignation of the public official from the conflicting private-capacity function, and/or resignation of the public official from their public office) 11.
SECTIONS 6 and 7
This section defines the obligations of the Anti-Trust Authority and the Broadcasting Authority to remove conflicts of interest, when they occur.
In the first instance, this means ensuring that a government official loses the posts, offices or jobs listed in Section 2(1) as incompatible with government office.
In the second instance, this means an obligation to act when:
· an undertaking under the authority of a person holding government office or that of his or her spouse or relatives up to the second degree, or companies or other undertakings controlled by them, operate in such a way as to take advantage of measures introduced in a situation of conflict of interest within the meaning of Section 3, and there is proof that those concerned were aware of the conflict of interest (Section 6 (3));
· companies operating in the sectors referred to in Section 2, paragraph 1, of Law No 249 of 31 July 1997 that are under the authority of persons holding government office or their spouses or relatives up to the second degree or controlled by them, act in such a way as to provide preferential support for a person holding government office (Section 7(1)).
Where such circumstances arise, the two authorities are authorized to enjoin the company to refrain from any such conduct, to take steps to put a stop to the infringement, or to take the necessary remedial action. In case of non-compliance, they are under an obligation to inflict a fine according to the seriousness of the conduct, the maximum amount of which shall be proportional to the pecuniary advantage actually obtained by the company, or to the seriousness of the violation.
Both authorities must inform the Speakers of the two houses of Parliament of their actions to ascertain the existence (or otherwise) of conflicts or interest and of any action to remedy the situation.
ANALYSIS AND COMMENT
Apart from the “administrative†incompatibilities (holding of specific posts, jobs and positions in addition to government office), circumstances when the authorities are authorised to act are very carefully and narrowly defined. This refers to cases when:
· an undertaking under the authority of a person holding government office or that of his or her spouse or relatives up to the second degree, or companies or other undertakings controlled by them, operate in such a way as to take advantage of measures introduced in a situation of conflict of interest within the meaning of Section 3, and there is proof that those concerned were aware of the conflict of interest;
· broadcasting companies that are under the authority of persons holding government office or their spouses or relatives up to the second degree or controlled by them, act in such a way as to provide preferential support for a person holding government office.
Thus, they are not authorized to act when the government official acts improperly, e.g. by offering unfair privilege to his/her own company, or acting to discriminate against, or weaken, a competing company. This is indirectly mentioned in Section 3 as constituting conflict of interest, but there does not appear to be any provision for dealing with such situations.
SECTION 8
The Anti-Trust Authority and the Broadcasting Authority must submit to Parliament a six-monthly report on the progress of the monitoring and supervisory activities referred to herein.
SECTION 9
Ths section makes provision for increasing the staff of the Anti-Trust Authority and the Broadcasting Authority, in order to be able to take on additional duties resulting from this law.
SECTION 10
This section sets deadlines for the execution of obligations resulting from this law.
