Competition authorities have ramped up their enforcement efforts over the last decade with a significant increase in the number and level of fines imposed. In 2010, the European Commission (the “Commission”) handed out fines to 70 undertakings exceeding €3 billion in the cartel area alone. The UK’s Office of Fair Trading (the “OFT”) has also been busy: it issued its highest fine to date coming in at £225 million which it imposed on two tobacco manufacturers and ten retailers engaged in unlawful pricing practices. So far, 2011 is on course to be another “profitable” year for the regulators.
Faced with this escalation in enforcement companies should be seeking to reduce their level of regulatory risk by implementing or enhancing competition law compliance programmes. Recently both the OFT and the Commission had some telling things to say about such programmes. This alert details the key benefits to implementing a competition law compliance programme and highlights differences in the approach taken by the Commission and the OFT to the existence of such programmes when it comes to fining companies which have breached competition rules.
A risk management policy including a properly implemented and actively maintained competition law compliance programme can provide companies with a range of benefits, including:
- preventing inadvertent infringements by staff by way of appropriate and tailored training sessions;
- identifying any existing competition law exposures, providing an opportunity to address them proactively by making use of leniency programmes offered by competition authorities;
- deterring individual “rogue” employees from anti-competitive behaviour which may result severe financial liabilities for the employer;
- identifying any competition law infringements by competitors or counterparties, enabling the company to use competition law as a sword to challenge, or seek compensation for, such behaviour; and
- if worst comes to worst, obtaining vital knowledge of how to deal with investigations and inspections by competition authorities appropriately.
In addition to the “direct” benefits of such programmes, certain competition authorities also grant companies, which have implemented a credible competition law compliance programme, a reduction in fines if they are found to have breached the competition rules. This is one of the areas in which the philosophies of the Commission and the OFT diverge.
In its recent guidance, the OFT reaffirmed its stance that it may take account of the fact that a company has implemented a compliance programme when deciding on the level of fines to be imposed on that company for breaches of competition law.
The OFT’s starting point in relation to the existence of a compliance programme is neutral (i.e. no automatic discounts or increases in the level of fines). However, if the company can demonstrate to the OFT that it has taken “adequate steps” to ensure compliance, the OFT will consider reducing the amount of financial penalty imposed by up to 10%. So-called “adequate steps” are the implementation of a compliance programme comparable in effectiveness to that described in the OFT guidance material.
Interestingly, the OFT has stated that it may take account of compliance efforts implemented both before and after the company first became aware of a competition infringement for which it is being fined. A swift and credible implementation of a compliance programme after a breach comes to light may, therefore, result in a reduced fine.
The Commission, however, has adopted a less forgiving approach in this context with Competition Commissioner Joaquín Almunia firmly rejecting the notion of reducing fines in such circumstances:
“[…] I am often asked whether companies should be rewarded for operating compliance programmes when they are found to be involved in illegal commercial practices. The answer is no. [W]e reward cooperation in discovering the cartel, we reward cooperation during the proceedings before the Commission, we reward companies that have had a limited participation in the cartel, but that, I think is enough. [I]f we are discussing a fine, then you have been involved in a cartel; why should I reward a compliance programme that has failed?”
The Commission’s stance is clear. It gives no credit for compliance programmes which have failed. Similarly, in contrast to the OFT’s approach, it will also not take account of compliance efforts implemented after a breach comes to light.
While the Commission’s logic takes it down a different path, it does not necessarily signal a deep gulf between the UK and EU competition authorities. Both recognise the value of effective competition law compliance programmes to companies; to that extent both regulators agree. Where they diverge, however, is whether there is a need to provide even greater incentives to persuade companies to do the right thing. In Commissioner Almunia’s words: “[t]he benefit of a compliance programme is that your company reduces the risk that it is involved in a cartel in the first place. That is where you earn your reward.” Under the one regime or the other, companies should, however, be better off with, as opposed to without, a compliance programme.