Violations of Canada’s Competition Act expose businesses and their directors, officers and employees to significant fines, possible imprisonment and private actions (on an individual or class basis) for substantial monetary damages. The potential legal, economic and reputational risks of non-compliance with the Competition Act are real and must be effectively managed by businesses as part of their overall risk management strategy.
In recognition of the critical role of compliance programs and training in competition law risk management, on September 18, 2014, the Competition Bureau issued an updated draft of its Corporate Compliance Programs Bulletin for a 60-day comment period. The Draft Bulletin is intended “to provide a comprehensive guide to assist all businesses in the development of a credible and effective compliance program.” The Draft Bulletin outlines in considerable detail the Bureau’s high expectation that Canadian businesses proactively foster a culture of compliance within their organizations and dedicate significant resources to managing their competition law risk.
Seven Fundamental Components of an Effective Compliance Program
The Draft Bulletin describes in extensive detail seven key elements identified as fundamental to an effective compliance program, adding two new elements to the five set out in the 2010 Corporate Compliance Programs Bulletin. The seven basic elements reflect well-accepted compliance principles and now explicitly include recognition of the critical importance of tailoring compliance policies and programs to address the specific legal risks most likely to be faced by the business, and evaluating the effectiveness of the compliance program on an ongoing basis.
- Management Commitment and Support – For a compliance program to be effective, it is critical that management and the board of directors actively foster a culture of compliance and demonstrate a “continuous and unequivocal commitment to compliance.” As a reflection of the importance placed by the Bureau on senior leadership in Competition Act compliance, the Draft Bulletin recommends for all but the smallest businesses the appointment of a full-time compliance officer for competition law matters, reporting directly and regularly to the board of directors on compliance developments, and the allocation of necessary resources to ensure the compliance officer can fulfill the role effectively. The Bureau anticipates that the compliance officer will: monitor business activities; provide regular employee training; plan and conduct audits; document all compliance efforts; and regularly evaluate the compliance program. As a practical matter, while it is well recognized that a commitment to compliance must come from the most senior levels, day-to-day competition compliance matters for many businesses are not likely to be handled directly by a person who occupies that role full-time and reports to the board of directors. Accordingly, this is an area where we would suggest the Draft Bulletin explicitly acknowledge that businesses are free to design their compliance programs to suit their specific needs and that while a full-time compliance officer is preferable for larger businesses, a compliance program will not necessarily be found lacking if it does not establish such a full-time role.
- Risk-based Corporate Compliance Assessment – An effective compliance program must adopt a risk-based approach to compliance program design. This is a welcome addition to the Draft Bulletin as it explicitly recognizes that there is no “one size fits all” model compliance program, and that an effective approach to Competition Act compliance must identify with specificity and place the greatest emphasis on avoiding the most serious risks that are likely to be encountered by the business in its day-to-day operations. This proportionate approach to compliance recognizes that organizations need flexibility in designing effective compliance programs but also places the responsibility on businesses to dedicate the resources necessary to tailor compliance programs to their individual situations, taking into account, among other things: the size of the business and its market presence; the nature of the industry; and the internal organizational culture. The Draft Bulletin contains useful suggestions to guide businesses in developing a tailored competition law risk assessment, though the expectation is clearly that organizations must decide for themselves where the risks lie and how best to address them.
- Corporate Compliance Policies and Procedures – The expectation is that a business will tailor and present its specific policies and procedures in a manner that is most relevant to the company’s operations and employees’ daily activities, establish internal controls to prevent contraventions of the Competition Act, and update the program to reflect business and industry changes.
- Training and Education – Organizations are expected to provide “at risk” employees with practical and effective ongoing training. The Draft Bulletin emphasizes that “documents alone can only go so far in promoting compliance” and effective training must deal with “the specific realities” of the business and “the situations an employee may face.” It also includes detailed guidance on when and how training should be delivered, for example:
- Experts should deliver training in a consistent manner throughout the business so as to avoid employees receiving conflicting information.
- Training sessions must provide opportunities for extensive discussions and questions.
- Management should play an active role in delivering compliance messages to employees.
- Compliance training should be mandatory for all staff in positions with identified risks for non-compliance.
- Employees should renew their training on a periodic basis.
- Monitoring, Auditing and Reporting Mechanism – The Draft Bulletin places emphasis on the importance of establishing an effective internal reporting procedure and ensuring the compliance officer is free to thoroughly investigate all compliance issues and take the steps necessary to stop and prevent contraventions. The Draft Bulletin sets out numerous suggestions including:
- Monitor business activities continuously or periodically, as appropriate for the business.
- Plan and conduct internal audits to assess compliance, and take immediate action to stop any competition law contraventions.
- Establish a confidential internal reporting procedure.
- Document all compliance efforts.
- Cooperate with the government where a breach has occurred.
- Consistent Disciplinary Procedures and Incentives for Compliance – An effective compliance program must establish and enforce a disciplinary code for employees, including management, who initiate or participate in conduct in contravention of the Competition Act.
- Compliance Program Evaluation – Each organization is expected to regularly evaluate its compliance program, including the training components and written materials, to ensure it remains effective and up-to-date as the business, its employees and the industry evolves.
Another new and welcome component of the Draft Bulletin is the inclusion of hypotheticals in an Appendix. These examples provide useful insight into the Bureau’s approach to assessment of corporate compliance programs in the context of criminal conspiracy investigations, misleading advertising issues, mergers and CASL (for more information on Canada’s anti-spam legislation, refer to our CASL Compliance page).
Leniency Incentive Program
While it is clear that the Draft Bulletin places the greatest focus on prevention of non-compliance with the Competition Act, it also outlines potential benefits of having adopted an effective compliance program in the event of non-compliance. Notably, the Draft Bulletin describes a new incentive program whereby a participant in the Bureau’s Leniency Program1 may be eligible for a reduced fine if it can demonstrate that it had a pre-existing, credible and effective corporate compliance program (for further information refer to our Osler Update regarding substantial revisions to the Leniency and Immunity Programs’ FAQs).
While details regarding the new program are not provided, the Bureau makes clear that the mere pre-existence of a compliance program will not automatically garner a company favourable treatment. A credible and effective program will be treated as a mitigating factor in the Bureau’s recommendations2 to the Public Prosecution Service of Canada under the Leniency Program, and may also have a positive impact on the magnitude of remedies sought by the Commissioner for contravention of the civil provisions of the Competition Act. However, the Draft Bulletin indicates that a company applying for fine mitigation under the Leniency Program is required to open its internal records to the Bureau’s Chief Compliance Officer in order to demonstrate that its compliance program was credible and effective. In addition to raising important questions about the disclosure of privileged information to the Bureau, some companies may be concerned about sharing compliance-related materials with the Bureau, particularly if such materials reflect the recommendation in the Draft Bulletin that the specific risks faced by the business be addressed in detail.
The Bureau’s decision to update the 2010 Bulletin to provide new detailed guidance on what constitutes a sufficient compliance effort follows from the Bureau’s renewed focus on working with Canadian businesses to promote compliance with the Competition Act. It also serves as a clear indication that the Bureau intends to hold accountable organizations that have not taken appropriate steps and dedicated the resources necessary to prevent contraventions of the Competition Act. While an organization facing an allegation of failure to comply with the Competition Act may derive some benefit from having had in place a well developed compliance program, it remains clear that prevention of non-compliance is the principal goal and benefit of an effective compliance program. Accordingly, Canadian businesses would be well advised to carefully assess the effectiveness of their existing compliance programs to determine whether they align with the factors identified by the Bureau, and consider whether revisions are advisable.
The Bureau is accepting comments on the Draft Bulletin until November 17, 2014.