Judicial Federalism in the ECJ's Berlusconi Case: Towards More Credible Corporate Governance and Financial Reporting?

Abstract:     
The objective of this note is to analyze the importance of three joint cases - one of them against the Italian Prime Minister Silvio Berlusconi - where the amendment of Italian financial reporting law is at issue, and to situate them within the bigger picture of the current state of corporate governance and financial reporting. Part I explains the legal context of these cases and outlines the opinion submitted by the Advocate General Juliane Kokott. Part II analyzes the three most important parts of the Advocate General's opinion in detail: the application of EU law on the nondisclosure of accounts to the publication of false accounts, the need for effective enforcement, and the effect of the principle nulla poena sine lege - that there must be neither crime nor punishment without law. The Advocate General recommends that Italy's judges should ignore the new Italian law, which takes a lax view of accounting fraud. On the one hand, this is surprising, as EU directives on corporate law and accounting do not address the issue at all. On the other hand, this strict approach to financial reporting is in line with increasing efforts toward stronger involvement of the EU federal level in corporate governance in general, in consideration of recent US corporate governance developments as well as the economic underpinnings of accurate accounting. Part III then addresses the issue of how the Berlusconi case may contribute to an increased effectiveness of EU efforts to strengthen and harmonize corporate law.

Keywords: Company law, accounting law, financial reporting, European law, accounting fraud, corporate governance

JEL Classifications: K22, K42

Accepted Paper Series