Cartel defence and antitrust investigations

November 2012 | 10QUESTIONS | COMPETITION & ANTITRUST

financierworldwide.com

FW speaks to Kurt Haegeman, a partner at Baker & McKenzie, about cartel defence and antitrust investigations.

FW: Antitrust cases continue to grab the headlines, with fines in the hundreds of millions and numerous executives facing jail time. Are these extreme cases or indicative of the scale of antitrust exposure?

Haegeman: This is the tip of the iceberg. US and EU fines are rising. Total US antitrust fines exceeded $500m for each of the past five years. In 2011 convicted foreign nationals faced average prison sentences of 10 months in the US. The EU broke all records with €2.9bn fines in 2010. Internationally, 93 percent of authorities reported fines on the increase. Seventy-one percent prioritised cartels. Our client surveys show antitrust among the top two compliance priorities for in-house legal teams. And the issue is globalising. Year on year, new competition laws are issued, authorities become better resourced and enforcement ramps up. Authorities in diverse locations across the globe – US, Canada, EU, Korea, Japan – now coordinate inquiries and time raids or subpoenas to coincide around the globe. Confidence that the company’s ‘home’ country is fully trained and committed to ethical business practices is simply not enough. An untrained employee in a far flung jurisdiction can embroil the company in a huge, globe-spanning investigation.

FW: Price-fixing, bid rigging and market sharing cartels are clearly illegal, not to mention criminal, and have been for decades – so why do we keep seeing household names in these headlines?

Haegeman: Sometimes it is bad company culture or commercial pressure – for example, unrealistic targets placed on commercial teams in stagnant or declining markets. But just as often it is lack of awareness of the huge risks involved. It can be a slippery slope. Cartels can start from a casual conversation, a reunion with an ex-colleague at a competitor, industry events or supplier days. A casual conversation is enough. The UK fined RBS £26m for a pricing information exchange between competitors over a six month period in casual pub conversations. The ECJ ruled in T-Mobile that a one off meeting could be a cartel. The Spanish authorities alleged a cartel based on the exchange of two email between vehicle dealers. Risks also arise in acquisitions. Multinationals now prioritise post-acquisition antitrust audits to flag up possible violations in the acquired company. The far flung nature of a global business, particularly in growth mode or in emerging markets, also presents challenges. Employees in low – or no – enforcement jurisdictions forget or ignore the risks their conduct poses in all jurisdictions where they do business, especially their major markets in Europe and the US.

FW: In today’s business world, cartel participants must take elaborate steps to conceal their activities. What methods, then, are authorities using to obtain their evidence?

Haegeman: Cartelists go to great lengths to conceal what they are doing – encrypted mobile phones, code words, changing email addresses, encoded emails. But this is all useless if someone ‘from the inside’ decides to blow the whistle, and produces all that carefully concealed evidence to the authorities in return for full immunity. This is the key source of leads for enforcers. All major jurisdictions have ‘leniency’ programmes which reward the first conspirator to break ranks and whistle blow on the cartel. It receives full amnesty from fines or criminal prosecutions. In some countries – Korea is the most notable, but the UK has also trialled this – there are monetary rewards for informing. In the UK rewards of up to £100,000 are available for giving the OFT information on cartel conduct. Less commonly, the complaint comes from customers or by disgruntled (ex) employees informing on their employer’s conduct. There are also examples of jurisdictions where economic data is monitored by an authority in an attempt to spot cartel conduct which is disrupting normal economic patterns. Cartel investigations ‘cascade’. An investigation started in one product market or territory quickly leads to investigations in neighbouring product areas or regions. Leniency programmes feed this process – a company caught in one inquiry discovers problems in other business lines, informs the authorities and sparks a fresh round of investigations. Bottom line: if you see investigations starting on companies in similar product areas or neighbouring markets, urgently consider whether you should review your company’s practices as well.

FW: Could you provide some background on antitrust dawn raids? What should a company’s immediate response be when confronted with this situation?

Haegeman: Raids – surprise searches of company premises for evidence – can be a traumatic and stressful experience, so preparation is key. Train a response team on what to expect and what to do – and what not to do – at each office location. Map those locations to your external law firm’s offices so they can provide urgent onsite assistance. Have a protocol in place for security guards, receptionists and employees, with the numbers for the company’s in-house and external legal advisers prominently displayed. When the officials arrive the receptionist should remain calm, contact the in-house and external legal teams and make a record of the officials’ identities and authorisation. Investigators will want to move swiftly to secure offices and systems. But they may be prepared to wait a very short period of time for the company’s legal team to assemble. The company’s response team should accompany each of the inspectors and should monitor physical and IT searches. The company’s due process rights – confining the search to relevant documents, protecting legally privileged documents – should be protected. The company is under a duty to cooperate in the search and there should be an immediate hold on document deletion/destruction. Obstructive conduct or evidence tampering will be heavily penalised – EON was fined €38m in 2008 in the EU for tampering with a door seal.

FW: What steps should a company take once an investigation has begun, and it has been contacted or raided by an antitrust authority?

Haegeman: Once contacted, the company is on the back foot. It has to investigate internally the full picture of any illegal conduct: Which products? Which countries? What time frame? Do we see suspicious conduct in other markets/business lines? Employees will try to downplay the extent of wrongdoing – or may simply not cooperate – so this is rarely a simple process. Personally implicated individuals may seek their own lawyers – and it is in the company’s interest to assist them in finding proper representation. The company will need external advisors to undertake the internal investigation covering all affected jurisdictions swiftly and seamlessly. Once the internal investigation is complete the company’s first, and most urgent, strategy call is whether to fight the case or cooperate in return for a reduced penalty. ‘Leniency’ programmes tend to reward the quickest party to cooperate. So the delay between being ‘second in’ or ‘third in’ can mean a difference of millions in the fine. But overhasty leniency applications can cost the company dearly. In case after case, we see a company winning amnesty in one jurisdiction, only for a competitor to confess first in a second country – where the first company had no idea it had exposure. The lesson: be sure you know full position before acting.

FW: What considerations should a company make if it uncovers a potential problem and undertakes an internal investigation?

Haegeman: If illegal conduct is identified, the company’s options are, first, to self-report the violation – and hope for leniency – or, second, to ‘wait and see’: terminate the conduct and hope no investigation starts within the statutory limitation period, which is five years, in the EU, but different in each country. This decision needs to be weighed carefully. Which jurisdictions are implicated? What are their leniency rules? What prescription periods apply? Leniency is never an easy option. Even complete amnesty only covers regulatory sanctions. It will not protect the company from civil damages claims by customers. And any investigation means bad PR and years of diversion of time and resources. ‘Wait and see’ requires careful consideration. If other conspirators are likely to whistle blow – which they may decide to do at any stage during the prescription period – then the company may lose the leniency race. ‘Wait and see’ therefore involves protracted legal uncertainty.

FW: An investigation may lead to litigation by alleged victims of the cartel. What strategies may a company employ to manage this situation?

Haegeman: Civil claims – once largely only a US phenomenon – are now common in many jurisdictions. The first step is for the company to understand the scope of their liability: who are the potential claimants and in which jurisdictions will the claims be launched? An early consideration is whether it is appropriate for the company to make a settlement offer to all potential claimants so as to save the company a large amount of legal expense defending claims. If this is appropriate, the company should make a provision for such a settlement in its financial planning.

FW: In these cases, prevention is far better than cure. Could you describe the current best practices in an antitrust compliance policy?

Haegeman: It’s all about training. Make it as practical and close to real business examples as possible. Repeat once a year and at least once every two years. Face-to-face training is ideal. Online training can be used as a ‘refresher’ tool, but never replaces face-to-face training. Compliance training should also be a compulsory component of each new joiner’s programme. This cannot be simply a pro-forma exercise. A compliance programme must have top down endorsement from the company’s leadership. There should be careful thought given to which employees are at most risk, and training tailored to their roles accordingly. Compliance should be monitored, audited, and followed up on. The key elements of antitrust compliance are leadership, risk assessment, standards and controls, training and communication, and monitoring, auditing and response.

FW: What is your advice to companies on reinforcing antitrust compliance throughout their organisation, given that rules are different around the world and local offices will have their own particular culture?

Haegeman: The policy must reflect the laws on the ground. This is not as daunting as it sounds. Most antitrust laws prohibit the same kinds of conduct, so the policy can be streamlined to require a similar level of conduct across the globe for these ‘red flag’ areas. Local variations can be called out in the policy so the business has appropriate local guidance where required – for example, the US is more permissive on resale price-fixing; the EU is stricter on resale territory restrictions; and the threshold for dominance is set low, at 20 percent, in Brazil. The policy cannot be a dead letter. The business will need to be trained – a mix of online and in-person training is best practice – and monitored in their compliance. These efforts should be focused on the individuals who are most active in the area of a business where antitrust law issues could arise, for example sales managers and trading staff.

FW: Case numbers and fines seem to increase year on year. What are your predictions for cartel defence and antitrust investigations in the coming years?

Haegeman: It is likely that the number of cases and fines will only continue to rise, especially in jurisdictions such as Brazil and India which have recently passed updated and new competition laws and view enforcement as a priority. There is increasing inter-agency cooperation between authorities around the world, which is only likely to increase the detection of multi-jurisdictional cartels. In already active jurisdictions such as the US and Europe it is also likely that authorities will continue to investigate antitrust abuses and continue to levy large fines. In the US, the number of criminal cases continues to rise, from 54 filed in 2008, to 90 filed in 2011 and the total fines levied by the US Department of Justice has exceeded $500m in each year since 2007. Earlier this year, EU Competition Commissioner Joaquín Almunia stated that he envisages a high total number of fines to be imposed in 2012.

Kurt Haegeman is a partner in Baker & McKenzie’s European & Competition Law Practice in Brussels. Mr Haegeman focuses his practice on EU and Belgian competition law. He acts for complainants and defendants in cartel and market power investigations, and advises on EU and multi-jurisdictional merger control laws in relation to mergers and joint ventures. He also advises on the impact of EU competition law and carries out compliance audits on the franchising and distribution practices of clients in a wide range of industries. Mr Haegeman can be contacted on +32 2 639 36 65 or by email: kurt.haegeman@bakermckenzie.com.

Mr Haegeman would like to thank Bill Batchelor, a partner at Baker & McKenzie, for his input into these responses. Mr Batchelor can be contacted on +32 2 639 36 32 or by email: Bill.Batchelor@bakermckenzie.com.

THE RESPONDENT

Kurt Haegeman

Baker & McKenzie