Why all businesses need an effective competition law compliance programme
August 2019 | SPECIAL REPORT: COMPETITION & ANTITRUST
Financier Worldwide Magazine
August 2019 Issue
Regulators around the world are becoming increasingly active in their enforcement of competition law. Around 150 countries have competition laws and no business, regardless of size and industry sector, is safe from regulatory scrutiny. Large businesses continue to be investigated, with the European Commission (EC) fining Google a record €4.34bn in July 2018, but smaller companies are also targeted. For example, the UK Competition and Markets Authority has fined six estate agents operating a cartel in a small coastal town and has also investigated the provisions of a single lease agreement at Heathrow Airport.
Infringing competition law can have extremely serious consequences both for the businesses and individuals involved. In particular, there is a risk of significant fines being imposed on the businesses. Many competition authorities have the power to impose fines of up to 10 percent of an undertaking’s global revenue. Simultaneous investigations in multiple jurisdictions around the world are commonplace.
A company may also face private damages claims from third parties who have suffered loss as a result of the infringement. The amounts claimed can often significantly exceed the level of any fines imposed by regulators. For example, the EU Trucks cartel has resulted in hundreds of damages claims throughout Europe claiming billions of euros. Claimants can bring multiple types of claim, including standalone actions, follow-on actions in which the claimant can rely on an infringement decision from a regulator as proof of anti-competitive conduct, and consumer class actions on an opt-in or opt-out basis.
Additional consequences can include sanctions against individuals, such as imprisonment, unlimited fines and director disqualification. Individuals have been extradited to face criminal prosecution for anti-competitive conduct. Wider issues include the potential for significant damage to a business’s reputation, the costs and time involved in investigative processes, and the unenforceability of contracts containing anti-competitive provisions.
It is therefore essential that all businesses have an effective competition law compliance programme in place, and there are three broad benefits to doing so.
Firstly, an effective programme can prevent or minimise the risk of competition law infringements occurring. In particular, employees will be more aware of the potential risks and more likely to identify and escalate relevant issues. This is important because all businesses are expected to understand, and comply with, their obligations under competition law. However, the application of competition law can be complex, and individuals may be unaware that their conduct is infringing the rules in certain situations, even if they consider that they are acting in the best interests of their company or in accordance with market practice.
Companies are liable for the actions of all employees, and can be held accountable for a breach of competition law by a single employee, even if they are junior, or acting outside the scope of their authority or in breach of company policy. Developing a compliance culture throughout any organisation is therefore crucial.
Secondly, an effective compliance programme will enable a business to promptly detect any infringements that do occur. This will allow the business the opportunity to consider whether to ‘blow the whistle’ to the relevant competition law authorities in exchange for immunity or leniency. This is an important decision because leniency can lead to significant reductions in the amount of any penalty ultimately imposed (up to 100 percent). For example, UBS avoided a €285m fine from the EC in May 2019 for revealing the existence of two foreign exchange spot trading cartels. In most jurisdictions, a 100 percent fine reduction is only available to the first business that admits to committing an infringement and cooperates with the authorities, which can result in a ‘race for immunity’.
Thirdly, in certain jurisdictions, fines can be reduced for businesses that have an effective compliance programme in place. This is recognised as a potential mitigating factor, and even if cartel conduct is already under investigation, the belated implementation of an effective programme could mitigate the potential penalty.
Characteristics of an effective policy
A number of competition authorities have issued guidance on how to design and implement an effective competition law compliance policy. The consistent message of these authorities is that it is critical to ensure the compliance policy is tailored to the activities of the business, is implemented at every level of the business, and forms part of a ‘culture of compliance’, which is encouraged by management and understood by all employees.
Key elements and considerations in relation to an effective programme, along with a non-exhaustive list of some practical examples for their implementation, are summarised below.
The first elements relate to designing an effective programme. This will include ensuring the compliance policy is tailored to the business, which will require an assessment of the competition law risks that are most relevant to that particular business. The assessment should involve relevant business personnel working alongside legal and compliance teams to ensure that the policy can be understood and applied by frontline staff and does not restrict legitimate business activity. Both the assessment and the policy will vary depending upon size and market position, sector and nature of the business. It is also important to ensure that sufficient resources are dedicated to the design, as well as the implementation and monitoring, of the programme, and that the compliance policy covers the entire company group.
The next step is to evaluate the risk to ensure that the compliance policy is effectively implemented, including, for example, identifying and targeting the employees at the highest risk due to the nature of their roles.
Once the risks have been identified and evaluated, they need to be effectively managed. This can be achieved by putting in place effective policies and procedures to minimise the risks occurring. These may include, for example, conducting effective and regular competition law training for employees, including any new joiners, implementing an employee code of conduct which covers competition law-related issues, and ensuring attendance at trade association meetings and contact with competitors is recorded and logged. This could also include establishing an internal ‘whistleblowing’ system for employees to report, on a confidential basis, any competition law concerns (the system should ensure anonymity and protection of those reporting from possible retaliation), and establishing a system requiring employees to obtain legal advice before taking certain actions in higher-risk areas.
Finally, it is important to undertake effective and regular monitoring, reviewing and updating of the compliance programme. This should involve ensuring it is refreshed at suitable intervals to take into account changes in activities, law and market practices, including accompanying training so individuals are aware of any updates, and carrying out auditing of the programme to ensure that it is being implemented effectively and is being understood by employees.
Jurisdictions offering lower fines for companies with compliance programmes
Certain jurisdictions offer potential reductions to competition law fines if companies have an effective compliance programme in place. UK regulations specifically permit a penalty reduction of up to 10 percent for implementation of an effective compliance policy. In Italy, an effective policy can result in a discount of up to 15 percent. Other jurisdictions have guidelines which refer more generally to the possibility of a fine reduction, or have granted reductions in specific cases. These jurisdictions include Australia, Hong Kong, The Netherlands, Singapore, Spain and, on very limited occasions, the US.
In summary, every business should ensure it undertakes an assessment of its key competition law risks, and puts in place an effective compliance policy to minimise and manage those risks. Digital tools are available to implement compliance more effectively and at lower cost, and are particularly useful for multinationals and companies with large workforces.
The compliance policy should be integrated within businesses’ overall legal compliance and risk functions. Any compliance programme-related materials and procedures should be documented in an accessible way, and all employees should be aware that it is the responsibility of everyone within their organisation to comply with competition law.
Finally, employees should also be aware that regulators have wide powers to obtain documents in all forms and records of verbal communications, such as meeting notes or from taped telephone lines. It is therefore essential that, in addition to acting in a compliant manner, documents and communications accurately and unambiguously demonstrate compliant behaviour.
Steven Vaz and Michael Holzhäuser are partners and Danica Barley is an associate at Ashurst LLP. Mr Vaz can be contacted on +44 (0)20 7859 2350 or by email: email@example.com. Mr Holzhäuser can be contacted on +49 (69) 9711 2850 or by email: firstname.lastname@example.org. Ms Barley can be contacted on +44 (0)20 7859 2883 or by email: email@example.com.
© Financier Worldwide
Steven Vaz, Michael Holzhäuser and Danica Barley