Compliance programmes are firmly back in the global spotlight when it comes to cartel enforcement in 2019.
In Europe, the Italian competition authority recently published guidance outlining what it perceives to be the key elements of an effective antitrust compliance programme and formalising a process for granting a reduction in cartel fines where the right type of programme is in place. In South America, the Chilean competition tribunal reduced a fine in February 2019 to reflect efforts that the cartel participant had made to implement such a programme – the first time it had awarded a reduction on these grounds. And, at the supranational level, the International Competition Network working group on cartels continues to focus on the issue of compliance, most recently in December 2018.
Yet, against this backdrop, research recently published on behalf of the UK Competition and Markets Authority (CMA) suggests that, at least in the UK, there is still a real lack of awareness within the business community regarding key tenets of antitrust law. The research, which surveyed 1,200 UK businesses, found that 77% of those surveyed did not understand competition law well and that only 18% ran any training relating to competition law. In a finding that may surprise many antitrust lawyers, 41% of those surveyed stated that they did not know that attending meetings in which competitors agreed prices – perhaps the quintessential example of cartel behaviour – was illegal. What is more, counterintuitively, knowledge of competition law was higher among medium-sized business than large businesses, with the latter’s familiarity with competition law having actually decreased since previous research by the CMA in 2014. And it is clear that this issue is by no means confined to the UK: a similar assessment conducted a few years ago by the Society of Corporate Compliance and Ethics in the USA revealed that almost two thirds of companies surveyed were not conducting antitrust audits that would meet the standards of the US Department of Justice (DoJ) Sentencing Guidelines.
Taken together, these surveys suggest that, notwithstanding the growing debate about the interaction of compliance efforts and cartel sanctions, and despite real advances in the sophistication of compliance programmes in certain companies, a significant amount of work remains to be done.
Why does compliance matter?
Whether it is the prospect of large fines from competition authorities (an increasing number of which are ready and willing to take on international cartels), the wide and growing threat of private enforcement action, the possibility of criminal liability (in certain jurisdictions) or the significant reputational damage that invariably flows from prolonged adverse press exposure, the risks of engaging in cartel activity are both evident and extreme. On this basis alone, there is a compelling case for companies to think carefully about their compliance activities. But there are also positive reasons for firms to foster a strong compliance culture, for example as a means of promoting themselves as responsible corporate citizens and distinguishing themselves as such against their competitors.
Competition authorities should bear some responsibility for encouraging, supporting and rewarding steps taken towards achieving such a culture. Offering the possibility of a fine reduction in circumstances where companies have genuinely sought to establish an appropriate compliance programme perhaps represents the most obvious tool that can be deployed to this end. Companies should bear in mind, however, that attitudes on this subject vary considerably between jurisdictions.
How do regulators consider compliance as a mitigating factor?
The policy of the European Commission – which to some extent exerts a shaping influence over many competition regimes worldwide – has long been to welcome compliance programmes rather than to reward them in the form of a reduction in fines. This is reflected in the fact that the Commission’s fining guidelines make no reference to compliance as a mitigating factor.
Similarly, the position of the DoJ, historically at least, has been that the primary benefit of (and incentive towards implementing) an effective compliance programme should be the opportunity to identify breaches quickly, and therefore potentially benefit from immunity, rather than a reduction in fines. However, the DoJ’s sentencing guidelines do at least allow for the possibility of reductions – and in fact the DoJ awarded sentencing credit for the first time in 2015 for the implementation of an effective compliance programme in two separate cases involving Barclays PLC and Kayaba Industry CO.
The CMA, on the other hand, has a clear policy (reflected in its fining guidelines) of offering a reduction of up to 10% for corporate compliance programmes. This is not to say that a ‘fig leaf’ compliance policy will guarantee a discount. The CMA’s guidance as to the appropriate amount of a penalty makes clear that the ‘mere existence of compliance activities will not be treated as a mitigating factor’. Instead, the CMA emphasises the importance of a ‘clear and unambiguous commitment to competition law compliance throughout the undertaking (from the top down)’. The 10% fine reduction awarded by the CMA to Fridge supplier ITW Ltd. in May 2016 and the smaller reduction in the fine imposed against the National Lighting Company in June 2017 are two recent examples of the approach taken to such cases by the CMA.
To complicate matters further, the attitudes of regulators and courts on this issue are subject to movement over time, with no single direction of travel apparent. For example, the French Competition Authority (FCA) issued a framework document in 2012 in which it set out the availability of a reduction in fines of up to 10% for companies committing to set up or to upgrade an existing compliance programme according to best practices. However, in a decision of October 2017, the FCA specified that compliance programmes should be viewed as part of the day-to-day management of companies and should not in general be considered as a mitigating factor. By contrast, in October 2018 the Italian competition authority made clear that a reduction of up to 15% is available where a suitable compliance programmes was in place pre-investigation (although this highest level of reduction is only allowed for those policies that allow timely detection and interruption of the antitrust infringement) and a reduction of 5% where a suitable compliance programme was put in place after the authority began its investigation. And in February 2019 the Chilean competition tribunal reduced a fine for the first time (by 33%) as a result of the ‘serious efforts’ the cartel participant had made to implement a compliance and ethics programme.
What is clear is that the question of whether a compliance programme ought to constitute a mitigating circumstance when it comes to fine calculation is currently enjoying the limelight in discussions between regulators and within the broader antitrust community, including at a roundtable session hosted by the DoJ in April 2018 that considered the issue at length, with contributions from regulators from Canada, Hong Kong and the UK. It therefore remains to be seen whether there will be a broader shift in policy, in the US and elsewhere, towards a recognition that at least in certain circumstances compliance programmes warrant fine reductions.
In any case, such divergence in attitudes should not deter companies from setting out to obtain the main objectives of corporate competition compliance policies: mitigating the risk of infringements (and all of the associated disbenefits) and, perhaps as importantly, given that no programme could ever purport to guarantee compliance, increasing the prospect of quick detection of any misconduct, allowing for prompt consideration of any mitigation opportunities (including the making of leniency applications, where appropriate).
Establishing and maintaining a corporate antitrust compliance programme
Guidance issued by institutions such as the OECD and by various competition authorities around the world (including in Brazil, Canada and the UK) provides a good starting point, and should be essential reading for those charged with competition law compliance responsibility within a company. However, the most effective programmes tend to be tailored closely to the specific risks that a company faces, taking into account the industry and countries in which it operates, its market position, distribution models etc.
Detailed consideration of how best to establish and maintain an antitrust compliance programme is outside the scope of this article, but the following five stages are generally recognised as key to an effective strategy to combat cartel risk:
- making a commitment to competition law compliance from the most senior individuals, through middle management, and down to the lower ranks – with the ‘tone from the top’ regarded as particularly vital in instilling a compliance culture across an organisation;
- identifying, assessing and categorising the risks specific to the company – for example, for some companies the exchange of sensitive information with competitors via suppliers or at trade fairs will be a key risk;
- formulating a strategy to address those risks, incorporating a combination of internal policies, procedures and training programmes – recent years have seen the emergence of increasingly sophisticated techniques to increase antitrust awareness, such as drawing on insights from behavioural psychology, gamification (with certain companies investing in bespoke software that is designed to inform employees of the specific risks they might encounter, and to identify any areas where further training might be warranted) and the judicious deployment of ‘reformed sinners’ (individuals who were personally involved in cartel conduct and who draw on their own experience to bring the subject – and the risks – to life);
- implementing and communicating the strategy effectively throughout the company – recognising that different approaches are likely to be required for senior management, sales teams etc.; and
- regularly reviewing how the business is doing – companies often use internal audits to check the effectiveness of their overall compliance strategy, but it is also important for this review process to consider whether the programme remains fit for purpose or should be recalibrated in the light of changes to the business, legal developments, shifting enforcement priorities etc.
Once a robust compliance programme has been established, any tweaks and improvements required, whether as a result of changing risk profiles or, as a worst-case scenario, in the light of enforcement action from a competition authority, should involve reduced management time and simpler implementation.
No time like the present
Even if jurisdictional differences render the treatment of compliance programmes by competition authorities somewhat difficult to decipher, there are good reasons to use the current debate and some of the latest thinking on how best to increase antitrust awareness as a prompt to action – whether by introducing an antitrust compliance programme for the first time, or by recalibrating and revitalising an existing programme so that it deploys resources most effectively towards the greatest areas of risk faced by the business. While no antitrust compliance strategy can offer complete protection against the possibility of future infringements, companies should ensure that they put themselves in the best possible position to mitigate the real and severe risks that accompany any involvement in cartel activity.