Competititon Development Foundation Roundtable Prevention and Compliance what

Competititon Development Foundation Roundtable Prevention and Compliance: what a competititon agency and an undertaking can do? Global experience 9 th September, 2015 , Kiev Hassan Qaqaya, Strategic Advisor Adam Smith International, London

Content 1. 2. 3. 4. 5. 6. Introduction Common features of a compliance program Trends in selected jurisdictions Sanctions and remedies Challenges and opportunities Concluding remarks

Introduction Ø Ø Ø Competition rules and their application in practice by competition authorities are often difficult to understand predict. This leaves companies with many unclear aspects when running their daily business. Competition rules should be designed to ensure not only that authorities and judges are able to apply them correctly and consistently, but also that companies are able to self assess where they stand take the necessary measures to ensure compliance. Preventing anti-competitive practices is far more efficient than investigating and sanctioning violations after they occur; however, breaches still happen and agencies would need to deter further violations. CAs are in the ideal position to encourage and facilitate the exchange of best practices on compliance among businesses. They should also make additional efforts to give directions to companies willing to implement compliance programs.

Common features of a compliance program 1. Endorsement by and commitment of senior management: There must be a strong and clear policy statement by top management that competition compliance is a core part of the corporate culture and that the company’s management expects employees to comply with competition rules. Corporate commitment is a fundamental precondition for effectively instilling a culture of compliance within a business. This will in most cases be reflected in the company’s standards of business conduct, or any similar internal code in an SME, and must send a clear and unambiguous message from the management to the employees

Common features of a compliance program 2. Proper policy and procedures: Every company, big or small, to different degrees has policies and procedures that govern its internal functioning, including key control checklists to ensure that risks of any nature are readily identified, prevented, remedied or mitigated. These procedures and key controls should be tailored to accommodate the demands of a robust anti-trust compliance program. In an SME context, this could, for example, mean introducing the employees’ duty to seek preliminary legal advice in case of any doubt of non-compliance. Everyone concerned should know whom to contact.

Common features of a compliance program 3. Identification of responsibilities: Senior management is responsible for instilling a culture of compliance and integrity. A member of the staff should be appointed as responsible for the compliance program. This is likely in most cases to be a senior member of the legal team and will report to the board. An SME could either assign this role to its in-house counsel or outsource this function to its external legal adviser.

Common features of a compliance program 4. Adequate resources: A robust compliance program needs to be adequately resourced. Compliance efforts should focus first and foremost on those aspects of competition law where the company is most exposed. Whether a group of companies is decentralised or strictly governed from the centre, there will be a need for some structure capable of ensuring that risks are identified and dealt with, and that training and advice are provided. An SME is likely to need a much less complex program than a large corporation, and the resources should of course be proportionate to that specific program

Common features of a compliance program 5. Specific training: Ideally all employees ought to be exposed to a general training session, notably as part of their introduction when joining the organisation. Targeted sessions will also be needed on the issues that certain categories of employees are most likely to be confronted with. The legal team should undergo specific training enabling it to counsel colleagues on the details of competition law. In case of SMEs, it will be sufficient to ensure that employees regularly receive simple, clear and up-to -date information on the major and most common antitrust issues they might be confronted with in their daily activity and an obligation to consult the in-house counsel in case of doubt.

Common features of a compliance program 6. Effective control: any compliance action will need to be followed-up by an effective control from the management. However, ideally the compliance action should instill in each employee the consciousness that respecting the rules is in the interest of all the staff in the first place. Therefore, a certain degree of selfcontrol is desirable to achieve really effective compliance.

Common features of a compliance program 7. Sanctions and rewards: The code of conduct of the company must make it absolutely clear that violation of any law, including competition law, will not be tolerated and will lead to disciplinary action, including termination of employment as appropriate. At the same time, initiatives and proposals by the staff that improve compliance should be visibly rewarded, as they contribute to the compliance culture and promote discipline.

Common features of a compliance program 8. Regular evaluation and evolution: It is important to monitor and improve the functioning of program, notably by regularly testing the level of competition law knowledge of employees, or by collecting the experience of the various business units throughout a region and encouraging comments and reports on the workings of the program

Trends in selected jurisdictions Authorities in a number of key antitrust jurisdictions provide guidance - often very detailed - on how companies can drive antitrust compliance. Several authorities go even further, providing a 'template' or framework for antitrust compliance program - see for example Australia (which provides four differentiated templates), Canada, Japan as well as efforts undertaken in the Netherlands). Ø

Trends in selected jurisdictions The genuine commitment of certain authorities to compliance efforts is reflected by a willingness to 'endorse' or 'certify' a particular program meeting (stringent) criteria (Brazil, Korea). Many countries specifically recognize that compliance guidance will differ according to size/sophistication/risk profile of the company. In particular, Canada provides guidance tailored to SMEs (and the detailed UK guidance acknowledges that SMEs face different issues). Ø

Trends in selected jurisdictions Some antitrust authorities spend significant effort and resources in engaging in advocacy and outreach to change societal and business norms to accept and expect a culture of compliance (Brazil). The significant role of an effective compliance program is reflected by the fact that, in a number of jurisdictions, companies may be required to give an undertaking (at the enforcement stage) to implement a compliance program (Canada, South Africa). Ø

Trends in selected jurisdictions Ø Ø Certain antitrust authorities have devoted significant resources to understanding which factors drive compliance (and non-compliance) with antitrust law: the ACCC in Australia refers to a three phase evolution it has observed over time -and the fact that a company rarely reverts to non-compliance once it has progressed to the third phase. Detailed UK guidance (for both companies and individuals) follows a major review of compliance literature and company/adviser attitudes - reflecting a philosophical commitment to driving compliance through avoidance as well through high fines etc

Trends in selected jurisdictions Ø Ø Ø In Japan, the Fair Trade Institute (an affiliate of the JFTC) helps companies establish and implement compliance programs and has also established a sample compliance program; in Australia, compliance is regarded as an "important component of the ACCC's integrated suite of compliance tools“ In France, the “Autorite” describes compliance as an "asset" for antitrust authorities.

Sanctions and remedies Competition law and policy only produce the desired effects if they are effectively implemented. A law that only exists on paper has no great value. Effective enforcement entails significant challenges for young competition authorities, due to insufficient resources, a yet-to-beimproved level of expertise of their staff, lack of political support from other government bodies, and a general unawareness competition law and policy in the business community. Safeguarding competition, the primary objective of most competition laws, requires companies to comply with compulsory provisions of procedural or substantive nature. Hence appropriate sanctions and remedies are of particular importance.

Sanctions and remedies Given that the restriction of rights and freedoms by decisions in competition cases, such as the prohibition of a proposed merger or the imposition of a fine, the rule of law requires that the undertakings concerned have access to judicial review. Sanctions are meant to deter unlawful conduct in the future, to force violators to disgorge their illegal gains and compensate victims. They serve the purposes of punishing past and present illegal behaviour and deterring from infringing the law. Deterrence aims at preventing recidivism of individual offenders, as well as at setting an example to other potential offenders.

Sanctions and remedies In contrast, remedies that aim at maintaining or restoring competition in the future are not punitive in nature. Typically, remedies are offered by the parties for example to a proposed merger in order to eliminate competition concerns and to obtain clearance by the competition authority. As opposed to sanctions which are unilaterally imposed upon a competition law offender, remedies are usually negotiated between the concerned party and the competition authority. Note that private enforcement has started to play a role in the field of competition law in a number of jurisdictions.

How to determine the appropriate sanction? When answering the question of how to determine the appropriate sanction, one needs to distinguish between the legislative level, i. e. the legislative choice to adopt a certain system of sanctions (administrative vs. criminal, means of private enforcement), and the enforcement level, i. e. the adoption of a sanction in a concrete competition case

The legislative choice Although most competition legislation provides for administrative or civil sanctions in case of anticompetitive behaviour, there is a certain trend towards criminalization. Today, USA and other countries – including Australia, Canada, Israel, Japan and the United Kingdom – impose criminal sanctions on individuals. It should, however, be pointed out that any sanction, regardless of its nature, will only produce the desired deterrent effect if the probability that unlawful conduct will be detected and prosecuted is sufficiently high, and if the level of fines imposed upon the wrongdoers is significant.

The legislative choice It should, however, be pointed out that any sanction, regardless of its nature, will only produce the desired deterrent effect if the probability that unlawful conduct will be detected and prosecuted is sufficiently high, and if the level of fines imposed upon the wrongdoers is significant. Apart from the trend of criminalization, private enforcement has recently also started to play a role in a number of competition law systems. Proponents of private enforcement put forward that the principle of fairness requires that antitrust infringers bear the costs of their wrongdoing, and not their victims and law -abiding usinesses. Effective compensation mechanisms for private parties are also considered to increase the likelihood that anticompetitive behaviour is detected and prosecuted

Determination of the appropriate sanction in a given case Determining the adequate level of fines as a demanding exercise. A number of competition authorities have adopted guidelines setting out the method of setting fines to be followed by the authorities. Such guidelines serve the purpose of transparency and equal treatment. Aggravating factors, such as a continuation or repetition of the infringement or an important role in its realization may lead to an increase in the fine. In turn, mitigating circumstances result in a reduction of the fine. Most importantly, the cooperation by a competition law violator within the framework of a leniency programme justifies a reduction of the respective fine. In addition, competition authorities may reward a company’s willingness to agree on a settlement of a cartel case with a reduction of the fine.

Determination of the appropriate sanction in a given case Young competition authorities report that they encounter difficulties gathering sufficient evidence to prove all relevant aspects for this exercise, including e. g. the duration of an anti-competitive agreement. In the case of a group of companies, it may be difficult to determine the legal entity ultimately responsible for the anti-competitive conduct

How to enforce sanctions effectively? Competition authorities may rely upon the intervention of the courts if a company does not pay an imposed fine. In such situation, the functioning of a country’s judicial system also affects the enforcement prospects of the respective competition authority. May face additional difficulties resulting from uncertainties as to their jurisdictional competencies and the applicable law. The threat by a large company to exit the market or its announcement to lay off personnel may have sufficient political weight to prevent the enforcement of sanctions.

Remedies Competition law remedies are adopted with the aim to maintain/restore competition in the market. This includes (a) the “micro” goals of putting the infringement to an end, compensating the victims, and curing the particular Problem to competition; but also (b) the “macro goal” of putting incentives in place so as to minimize the recurrence of just such anti-competitive conduct. The design of optimal remedies requires a clear Identification of the competition law problem that the antitrust remedy is attempting to address. it is helpful to spend time early in the investigative process defining the remedial objectives and developing a plan for attaining them. Agencies should bear in mind that remedies are not tools of industrial planning and are generally ill-suited to achieve aims wider then addressing the competitive detriments.

Judicial review of competition cases Flawed decisions in competition cases may infringe the rights of their addressees and third parties. More generally, they may also negatively affect economic activity in a given country. Hence, state-of-the-art competition law enforcement requires the existence of mechanisms to ensure that decisions taken by competition agencies are fair and lawful. The addressees of a competition decision and possibly third parties need to be given the possibility to appeal against the decision, if they feel that their rights have been violated. Such mechanisms are referred to as judicial review.

Judicial review of competition cases Judicial review itself is subject to the requirements of due process, which implies that all administrative and judicial decisions must be taken in a fair way, respecting the procedural rights of the parties concerned. This means that the court that reviews the decision under appeal must hear both parties to the appeal. Also, the court’s decision needs to be in writing and set out the reasoning that led to the court’s ruling to allow the parties and understanding of the court’s thinking.

Concluding remarks Enforcement and compliance programmes are part of a portfolio of tools which competition agencies can use flexibly; Enforcement and compliance are a process and require permanent attention and resources. CA therefore need to set priorities and use resources sparingly to meet objectives effectively and limit the cost of complaince to business. Both enforcement and compliance require indepenedence, accountability, fairness and transparence in the application of the competition law.